Netflix Raises Rates for New Subscribers, Boosting Stock Price

Last week Netflix announced it was raising its rates for new subscribers in the U.S., Canada and Latin America from $8.99 a month to

Subscription News: Netflix Raises Rates for New Subscribers

Source: Netflix

Last week Netflix announced it was raising its rates for new subscribers in the U.S., Canada and Latin America from $8.99 a month to $9.99. According to the Wall Street Journal, Netflix is increasing prices to cover the costs of content acquisitions and the investment in original programming. Rates for Netflix’s standard plan at $7.99 a month for one stream and premium plan at $11.99 for four streams at once will remain the same. Netflix made the announcement in an emailed statement, says the Wall Street Journal:

“To continue adding more TV shows and movies including many Netflix original titles, we are modestly raising the price for some new members in the U.S., Canada and Latin America,” a Netflix spokesman said in an emailed statement. “As a thank you to existing Netflix members — who aren’t already benefiting from grandfathering — we will maintain their current price for a year.”

 Boosting Stock Price

Source: Netflix

This comes shortly after a similar move in Europe. In August, Netflix raised its rates in most European markets by one euro per month, or $1.10, for new subscribers in most European markets, bringing the price for its high-definition streaming video plan to 9.99 euros. Prices for existing members, however, will remain the same for a year.

According to Bloomberg, the rate increase was imposed to help Netflix raise money to add more TV shows and movies to the subscription service’s line-up. At the close of trading the day of the announcement, Netflix (NASDAQ: NFLX) stock shares rose to $110.09 each, a 1.8% increase. As of the writing of this post, stock shares have further spiked, now at $113.03 each, signaling that investors are pleased with Netflix’s most recent pricing decisions.

Insider Take:

Since the U.S. price increase came so closely after the price increase in Europe, this news isn’t particularly surprising. Netflix has a growing pool of competition, so it needs to be careful that it doesn’t price itself out of the market. So far, that doesn’t seem to be a concern. Its closest OTT competitor, Hulu, offers a higher-priced, ad-free plan at $11.99 a month, so Netflix is still offering a superior product for less. In addition to content acquisition costs, Netflix recently inked a deal to allow “in app” purchases on Apple devices (iPhones, iPads, iPods), meaning Netflix is now subject to the so-called Apple Tax ranging from 15 to 30%.

While subscribers still pay the same monthly rate to Netflix, Netflix has to share its revenue with Apple. [The percentage has not been disclosed by either Netflix or Apple, but other revenue share arrangements have been between 15 and 30%.] By increasing its pricing for new subscribers, Netflix will help defray some of this expense.

Netflix still reigns supreme in the streaming video world and could, quite frankly, charge more than $9.99 a month without losing many of its loyal subscribers. This arrangement, however, seems equitable, offering a reasonably priced product to new subscribers while also pleasing Netflix investors and giving the company some additional revenue to fuel its growth. 

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