Netflix has confirmed a price increase for new subscribers in the U.S. and Canada.
A company spokesman said it would be a "modest" increase of $1 to $2 and would go into effect this quarter (before June 30) for new Netflix members. For existing subscribers, the same increase is postponed for another two years.
Netflix stock, already one of Nasdaq’s high flyers, jumped 6.5 per cent today to $371 US after the streaming service announced it would raise subscription prices.
Netflix, which has committed to sink millions into new series over the next few years, said subscription prices would help pay for new series such as House of Cards and Orange is the New Black, both original content created for Netflix.
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The new member increase has already gone over well in Ireland, the company said Monday, after releasing its first-quarter financial reports.
In Ireland, new subscribers are now paying €7.99 ($12.16 Cdn) a month, up by one euro, though existing members are locked in at the old €6.99 ($10.64 Cdn) per month price for two years.
In its letter to shareholders, Netflix announced it would be bringing in an increase, the first since 2011, for its new U.S. subscribers and hinted that similar price increases would go ahead around the world.
Letter sets out price hike plans
“We have greatly improved our content selection since we introduced our streaming plan in 2010 at $7.99 US per month. Our current view is to do a $1 or $2 increase, depending on the country, later this quarter for new members only,” the letter said.
The delayed price increase appears to be a tactic to avoid a backlash like the one Netflix experienced in 2011, when it lost about 800,000 subscribers after a price increase.
Investor reaction Tuesday indicates the market approves of the strategy and believes Netflix is so central to most TV lovers, that it will absorb the increase.
The stock was trading at $85 this time last year, but hit a peak of $458 last month until Nasdaq was hit by a bear run over investor concern about high-flying tech stocks.
Netflix has increased its subscriber base to 34 million households in the U.S. and presents a formidable competitor to paid TV and conventional TV.
Worry over cost of broadband
In addition to the expense of making original series, it is dealing with increased costs by internet service providers who are raising their prices to combat the growing demand for video streaming.
It is also facing the fact that Comcast could control the price of high-speed broadband for 60 per cent of American households after it completes its purchase of Time Warner Cable.
A Netflix spokesman said the company has already increased its range of video offerings in Canada, though it is not yet as extensive as the U.S. because of licensing concerns.
In Canada, broadband prices are already higher and reception is poorer, but Canadians have fewer choices for similar services. Amazon’s Prime isn’t offered here, nor is Hulu.
Netflix says it has yet to make money on its collective international operations and predicts a loss next year as well.