Netflix announced that it expects to increase the cost of its streaming-video service by one or two dollars monthly for new subscribers later in the second quarter of 2014.
“We have greatly improved our content selection (in the U.S.) since we introduced our streaming plan in 2010 at $7.99 per month,” the company said. “Our current view is to do a one- or two-dollar increase, depending on the country, later this quarter for new members only.”
Netflix noted that existing members would remain grandfathered in at current pricing (for example, $7.99 per month in the U.S.) for a period of time — either one or two years — which the company characterized as “generous.”
The price increases “will enable us to acquire more content and deliver an even better streaming experience,” Netflix CEO Reed Hastings and CFO David Wells wrote in their Q1 2014 letter to shareholders.
Netflix said it decided to raises prices after it saw “limited impact” from its January 2014 price increase for new members in Ireland (from €6.99 to €7.99), which included grandfathering all existing members at €6.99 for two years.
In 2011, Netflix effectively raised prices by splitting apart streaming and DVD-by-mail plans, amounting to a 60% price increase for customers who previously paid for $9.99 a combined plan that offered unlimited streaming and one DVD out at a time. That resulted in a hit to its subscriber totals. But the new price increases are different because they would apply only to new subscribers. Netflix is seeking to “grandfather people cleanly” this time around, Hastings said in discussing Q1 2014 results, adding that Netflix’s near-term revenue will not increase substantially from the new monthly streaming prices.
Last year, Netflix tested two new tiers of services at different price points: a $6.99-per-month option with a single stream (one device at a time) and standard-definition video and a $9.99 monthly option that provides up to three simultaneous HD streams. The new price increases are independent of such usage-based tiers, which Hastings said Netflix is continuing to evaluate.
Hastings, in discussing Q1 2014 results in a webcast Monday, downplayed Netflix’s competition with Amazon.com’s Prime Instant Video, which is available to customers of the e-retailer’s program for free two-day shipping on products. Consumers are viewing Netflix and Amazon offerings as “separate channels” that provide different programming, he said.
“I’m a Prime member, and most Netflix employees are Prime members,” he said. “It’s very much not a zero-sum game… we’re both building this ecosystem around Internet video.” Amazon recently raised the price of Prime in the U.S. to $99 annually, up from $79.
Netflix is available through Amazon’s recently launched Fire TV set-top, Hastings noted, and is working to support the device’s voice-enabled search feature for Netflix content in the future.