Netflix, Inc. (NASDAQ:NFLX) surprised a section of consumers when the company announced its plans to increase the subscription rate for new members. The Internet streaming company said during its Q1 earnings conference call that it will raise its subscription price by $1 or $2 a month for new subscribers sometime before July.
While some might fear that it would affect Netflix, Inc. (NASDAQ:NFLX)’s user growth, industry experts believe that the price rise is unlikely to drive out subscribers. In fact, it should strengthen the Los Gatos-based company’s reputation for high-quality content. Kaan Yigit, president of the Solutions Research Group, said that he already expected the company to increase prices. A dollar or two won’t make any impact on customer penetration in the short-term.
Netflix will keep growing like crazy
Greg O’Brien, editor-in-chief of Cartt.ca said that the price increase may affect its growth a little bit, but Netflix, Inc. (NASDAQ:NFLX) will still continue to grow like crazy. Despite the price increase, the company may touch 50 million subscribers by the end of the second quarter. However, some industry watchers are cautious because they fear a 2011-like scenario. Three years ago, Netflix had raised the price for U.S. consumers. The move panned out badly as the company lost more than 800,000 subscribers in 2011. So much so that Netflix CEO Reed Hastings had to issue an official apology.
However, Netflix, Inc. (NASDAQ:NFLX) is in a much stronger position now. 2011 was a different case because the company was still dealing with mail-in DVDs, which is no longer a major business for the company. Today, Netflix has an ever-growing library of TV shows and movies. The company has built a reputation for its original programming with Orange is the New Black and House of Cards.
Why Netflix raised subscription rates
Netflix, Inc. (NASDAQ:NFLX) said the price increase will help it acquire more content and provide even better streaming experience. Forbes estimates that the price hike could add $600 million-$1.2 billion to the company’s revenues in the next two years. Gartner analyst Michael McGuire said Netflix could highlight its high-quality original programming such as House of Cards to justify the price increase.
Netflix, Inc. (NASDAQ:NFLX) faced a big setback on Wednesday when HBO licensed its older programming library, including The Sopranos to Amazon.com, Inc. (NASDAQ:AMZN). It’s the first time HBO has signed an exclusive deal with an online video provider. Now the episodes of most past HBO shows will be available for streaming without any extra fee.
Netflix, Inc. (NASDAQ:NFLX) shares fell 5.05% to $354.08 at 3:56 PM EDT on Wednesday.