Can you hear the groans of dismay? More than likely they are being drowned out by the cheers from Wall Street. Netflix is pulling an Amazon and increasing the pricing structure of its streaming service. $7.99 for the library and original content is going away. The new figure will see your checking account losing an additional dollar or two a month.
New subscribers will see the hit first, with a ‘generous grace period for old subscribers’. There’s no timetable for the grace period, but expect it in a year or so. They will want to buffer any hits they take on subscriber growth thanks to the World Cup this summer.
The move by Netflix shows its increasing confidence that its original content can drive subscriber growth. House of Cards season 2 was an immense success, and the show was immediately renewed for a third season. Hey, keep shoveling me my dose of President Underwood and I’m cool with the extra dollar or two.
A more nuts and bolts reading of the price increase comes down to net income. You hear adjectives like soared etc. The final print for the first quarter showed income jumping to $53.1 million, from $2.7 million a year earlier. Toss in the price increase, and that income will grow rapidly.
Subscriber adds came in at 2.25 million new domestic subscribers. Total U.S. subscribers now stands at 35.7 million. Plenty of room to grow the service. International subscribers increased by 1.75 million to 12.7 million. Plans to introduce the service to France are in the works, and should boost the international subscriber base even more.
The stock is trading down this morning – probably due to the Amazon news.
The move to increase subscription fees is seen as a positive for the stock, but it seems investors want to wait and see if any backlash emerges. Netflix is also a momentum darling, and if the volume lightens, the stock has a tendency to get volatile.
One piece of news that isn’t helping Netflix’s cause is the massive HBO and Amazon video deal. That has Netflix reacting negatively and the stock is down almost 3% in early trading.