Netflix Inc is to raise its US prices for the first time since 2017, a move designed to alleviate a large, debt-fueled US$13 billion investment in new films, series and documentaries this year — as well-funded competitors emerge in the content streaming business.
The subscription price hikes, which constitute a jump of between 13 percent and 18 percent, take effect immediately for new customers, but are to be phased in gradually for existing subscribers over the next three months.
Wall Street welcomed the move, sending Netflix shares higher as investors anticipate more revenue for the streaming giant.
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The streaming service, which has 58 million subscribers in the US and has shaken up the traditional model for both television and movie studios, is confident that subscribers will not shy from increased prices.
Netflix’s previous subscription increase in 2017 did little to slow growth, as the company added 24 million customers that year.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” Netflix said in an e-mailed statement on Tuesday.
Under the new terms, Netflix’s cheapest basic plan is to cost US$9 a month, up from US$8; its most popular HD standard plan is to cost US$13, up from US$11; and its 4K premium plan is to cost US$16, up from US$14.
The company is expected to show strong growth when it reports its earnings today. It has been winning acclaim for its original productions, including Stranger Things, The Crown, Bird Box and current hit Tidying Up With Marie Kondo, and shows no signs of letting up.
However, the firm has been burning through cash — as much as US$3 billion last year — to contain threats from Amazon.com Inc, Walt Disney Co and Apple Inc, all new entrants to the streaming business that have promised significant investments in original content.
On Monday, Comcast-owned NBCUniversal Media LLC announced that it would launch a newstreaming service next year.
Walt Disney is also set to launch its Disney+service later this year.
If analyst predictions proved correct, the efficacy of Netflix’s subscription model would be borne out today when it reports 9.2 million new subscribers for the final quarter of last year.
That was also underscored by the company’s strong showing at the Golden Globes, where it won five awards, more than any other network or studio.
Goldman Sachs predicted that the results “will only be the beginning of the payoff from Netflix’s accelerating spend and increasingly robust originals slate,” adding that “consensus continues to significantly underestimate the financial impacts of these dynamics.”
UBS said that Netflix would “achieve a higher margin and free cash flow trajectory than currently implied by the market” as its original content “demonstrates outsize marketplace success.”
However, emerging competition is likely only to increase pressure on Netflix to redouble its efforts. Jeff Bock, an analyst at Exhibitor Relations, recently predicted that the emerging dogfight for talent could end up replicating film’s studio system of its early years.
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