Typically when a company offering a service puts out offers for new members, it gives them special introductory rates to try the service. This might put off regular members who pay a higher fee a bit, but they understand the method behind the offer. Now comes word that Netflix is going to raise its price for a subscription by $1 to $2 a month, but just for new subscribers. Its current members will continue to pay $8 a month for the next year, before facing an increase themselves.
Netflix is positioning the price increase as a means to help the company license more and better content, while developing more original series such as the hit "House of Cards" starring Kevin Spacey.
"If we want to continue to expand to do more great original content, more series, more movies, we have to eventually increase prices a little bit," Reed Hastings, Netflix CEO, said in a video conference call with analysts. "You're talking about a dollar or two difference per month, so I don't think that it's a huge difference."
Investors were pleased with the Netflix price hike. The company's stock price rose nearly seven percent in trading after the announcement yesterday.
"The earnings leverage of even just a dollar is pretty substantial," said Daniel Ernst, an analyst at Hudson Square Research told Bloomberg News. "For what Netflix provides, it's an incredible value for consumers."
Netflix's steaming video service grew by 2.25 million members in the U.S. during the company's first quarter. Membership outside the U.S. grew by 1.75 people during the same period.
One concern with the higher price for new subscribers is that it will slow the number of new members who join the service. The company, which expects to add just over half a million net subscribers in the next quarter before the increase takes effect, faces increased competition from a wide variety of online video services from Amazon, Apple, Comcast, Google, Hulu, etc.
Will Netflix's plan to raise subscription prices for new members while grandfathering the current price for existing members help or hurt its total membership numbers?