April 22, 2014 in Business

Netflix poised to raise streaming prices after strong quarter

Michael Liedtke Associated Press
 
Associated Press photo

Netflix announced it will increase the price for new streaming subscribers within a few months.
(Full-size photo)

SAN FRANCISCO – Netflix is preparing to raise its prices for the first time in three years to help pay for more Internet video programming such as its popular political drama “House of Cards.”

The increase, to take place sometime before July, will hike prices by $1 or $2 per month for new streaming customers. The Los Gatos, Calif., company says current U.S. subscribers will continue to pay $8 per month for a “generous time period.”

The move announced Monday as part of Netflix’s first-quarter earnings report illustrates the financial pressures mounting on the company as it spends more money to license compelling content. The efforts are aimed at warding off threats from Amazon.com Inc. and Hulu.com while Microsoft Corp. and Yahoo Inc. also are gearing up to buy Internet video programming from Hollywood studios.

Amazon recently raised the price of its Prime service, which includes an expanding Internet video library, from $79 to $99 annually.

Investors evidently like the prospect of Netflix bringing in more revenue. Netflix’s stock surged $23.01, or 6.6 percent, to $371.50 in extended trading after Netflix announced its plans.

Price increases are a risk for Netflix. The company was stung by a customer backlash in 2011, when it boosted rates by as much as 60 percent for U.S. customers who wanted to continue to receive Internet video and DVD-by-mail services. Netflix lost about 800,000 subscribers after the 2011 pricing change was announced, rattling investors so much that the company’s stock plunged more than 80 percent before starting to rebound in August 2012.

Netflix has been on a roll since the backlash subsided. The company added another 2.25 million Internet video subscribers during the first quarter to end March with 35.7 million U.S. customers.

That’s up nearly 50 percent from 23.9 million U.S. subscribers in July 2012.

Meanwhile, Netflix’s DVD-by-mail service is slowly dying. Through March, Netflix had 6.7 million DVD customers, a 52 percent drop from 13.9 million just two years ago. Netflix isn’t changing its DVD prices.

Netflix Inc. earned $53 million, or 86 cents per share, during the first three months of the year. That compared to $2.7 million, or 5 cents, last year.

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