Learning From Past Mistakes, Netflix Takes New Approach to Price Hikes
In a letter to shareholders released yesterday, Netflix's CEO Reed Hastings and CFO David Wells tentatively announced that the company plans to raise prices by somewhere between $1 to $2 (depending on the country you live in) within the next three months. U.S. subscribers currently pay $6.99-per-month for a single stream option (one device at a time) and standard-definition video or $9.99-per-month for up to three simultaneous HD streams.
But for all of those currently binging on the service's content – don't freak out yet. "Existing members would stay at current pricing for a generous time period," Hastings and Wells wrote, bolding the sentence for emphasis.
What, exactly, constitutes a "generous time period" for subscribers in the U.S. remains unclear, although it'll likely be somewhere around the two year mark. (In January, Netflix tested a similar price hike in Ireland, asking new subscribers to pay €7.99 instead of €6.99, while giving current subscribers a two year grace period before they'll have to fork over that additional euro per month.) With the second season of Netflix's popular original series Orange Is the New Black slated to debut in June, it's a move that could help stop people from signing up, consuming a show at rapid speed, and then promptly cancelling their subscription.
This subtle, let's-ease-everyone-into-this approach is drastically different from the last time Netflix raised subscription prices, back in July 2011, when the company abruptly announced a 60 percent price hike on combination DVD and streaming plans, incurring the full ire of the internet and causing nearly a million subscribers to make good on their threats, and ditch the company altogether.
That disaster can't be far from Reed Hasting's mind (hence the bold text). The money generated from higher prices, the letter continues, "will enable us to acquire more content and deliver an even better streaming experience."
What could that new content consist of? The letter offers substantial hints, outlining a lineup that includes series depicting "the epic adventure of Marco Polo; a psychological thriller from the creators of Damages; Marvel‘s Daredevil; sci-fi drama Sense8 from the Wachowskis, and Narcos, an action-drama series from Brazilian director José Padilha on the fall of Colombian drug kingpin Pablo Escobar."
In recent years, with the critical success of original content series like House of Cards and Orange Is the New Black, Netflix has consistently (and brashly) positioned itself along more established brands like HBO.
"Our original programming initiatives gained momentum in Q1. House of Cards, for which Season 2 debuted in February, attracted a huge audience that would make any cable or broadcast network happy," Reed and Wells wrote.
The video streaming service also reported first quarter earnings of $53 million, or 86 cents a share. Its subscriber base grew more than expected, adding 4 million for a total of 48 million members worldwide.