(Bloomberg) -- Netflix Inc. raised prices for its most-popular plan for the second time in two years, betting subscribers are willing to pay more for a huge library of shows and movies as the pandemic rages on.
The world’s largest streaming video service is raising the cost of its main U.S. subscription by $1, to $14 a month. That includes full high-definition viewing. The price of its 4K-resolution service increased by $2, to $18. An entry-level tier stays priced at $9.
Netflix shares rose as much as 5.7% on the news and finished Thursday’s session up 3.7% to $504.21. The stock is up 56% this year.
The increases take effect immediately for new customers. The existing base of more than 65 million U.S. subscribers will see the changes over the next two months.
“We’re updating our prices so that we can continue to offer more variety of TV shows and films,” the company said in a statement. “As always, we offer a range of plans so that people can pick a price that works best for their budget.”
In the past, Netflix price hikes have led to a slowdown in subscriber growth, particularly in the more-mature U.S. market. But on a conference call with investors last week, Chief Operating Officer Greg Peters said the company believed it could raise prices, given the large amount of original and popular shows it produces.
Netflix’s fall programming slate includes season four of the British-monarchy drama “The Crown,” focusing on the queen’s relationship with Princess Diana, and Ron Howard’s film version of the J.D. Vance memoir “Hillbilly Elegy,” starring Amy Adams and Glenn Close.
“We feel like there is that opportunity to occasionally go back and then ask members, where we’ve delivered that extra value in those countries, to pay a little bit more,” Peters said.
Raising prices in a difficult economic environment isn’t without risks, which Netflix nodded to by keeping its service for budget-conscious subscribers unchanged. Spotify Technology SA, the largest audio streaming service, slid Thursday after reporting subscription-service revenue that missed estimates. That company cited price increases in certain international markets.
What Bloomberg Intelligence Says
“Netflix’s decision to raise prices on its streaming plans for its U.S. subscribers speaks to the service’s strength of content and value proposition. ... The move will result in about $800 million or more of incremental revenue and will boost free cash flow.”
--Geetha Ranganathan, media analyst
Click here to read the research.
The increase in Netflix’s most-popular tier brings its price closer to, but still below, that of AT&T Inc.’s HBO Max, whose $15 monthly fee is thought to have discouraged sign-ups by people who didn’t already have HBO.
Netflix last week reported a second-quarter global subscriber number that fell short of analysts’ expectations. Chairman Reed Hastings said he wasn’t concerned about the shortfall, since the global pandemic had prompted more subscribers to sign up early in the year and viewing trends remained strong. The company has over 195 million subscribers worldwide.
Netflix most recently announced higher U.S. prices in January of last year, an increase at the time of $2 a month for the most-popular plan.
(Updates with fall programming in seventh paragraph.)
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