By Joe Flint
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 16, 2019).
Netflix Inc. raised prices for all of its subscription plans, a
move that fortifies the streaming-video giant's aggressive spending
on content in the face of stepped-up competition.
Netflix, which last raised its prices in late 2017, will
increase the cost of its most popular plan by 18% to $13 a month,
from $11. That plan allows users to stream on two screens at the
same time. The most basic plan, which allows a single stream, will
go up one dollar, or 13%, to $9 a month.
Raising prices will help Netflix swallow higher content costs as
the streaming TV wars intensify. An array of companies -- from
Amazon.com Inc. and Hulu to new entrants like AT&T Inc. and
Walt Disney Co. -- are seeking to secure the premier movie and TV
rights that will attract subscribers. Netflix is already a heavy
spender, and those outlays will likely rise further amid the
competition.
The company's shares rose 6.5% to $354.64 on Tuesday. Netflix
has increased its revenue at a rapid pace over the past several
years, but it hasn't generated huge profits, and investors have
been watching to see if the company would turn up the lever on
pricing.
The new rates will go into effect immediately for new customers
in the U.S. and be applied to the accounts of existing U.S.
customers in the next few months, according to a person familiar
with the plans. The increases will also apply to countries in Latin
America and the Caribbean where Netflix bills in U.S. currency.
"We change pricing from time to time as we continue investing in
great entertainment and improving the overall Netflix experience
for the benefit of our members," a Netflix spokesperson said
Tuesday.
The increase in monthly subscriber fees comes as Netflix
continues to spend heavily to woo talent to its streaming service.
The company already has reached long-term deals costing hundreds of
millions of dollars with powerful Hollywood producers such as
Shonda Rhimes and Ryan Murphy. Industry analysts expect Netflix
this year will spend $12 billion licensing and creating content,
more than double what it spent just two years ago.
New streaming competition could drive up costs further. Walt
Disney Co. Disney and AT&T's WarnerMedia are launching their
own subscription streaming services to compete with Netflix later
this year. Comcast Corp.'s NBCUniversal on Monday disclosed plans
to launch an ad-supported streaming service in 2020 that will be
free for Comcast pay-TV subscribers and available for a monthly fee
to those who have canceled their cable TV packages, known as cord
cutters.
All those traditional players are considering ending some
content-licensing deals with Netflix, retrieving reruns of popular
shows they produce in order to feed their own streaming services.
Disney has already indicated that its movies and TV shows in the
future will be reserved for its own streaming effort.
Last month, WarnerMedia struck a deal ensuring that its hit show
"Friends," which has been available on Netflix, will be able to
move to WarnerMedia's service when it launches.
That could become a headwind for Netflix, or at least force it
to pay more to retain certain shows.
Hulu, the streaming service owned by Disney, Comcast and 21st
Century Fox, is also an aggressive bidder for content. It has 25
million subscribers after strong growth last year driven by
discounts to entice new subscribers.
So far, Netflix's strategy of betting big on programming appears
to be paying off. Netflix is coming off one of its most successful
original-programming efforts with the movie "Bird Box," which it
said had a record-setting first week with 45.3 million of its 137
million accounts watching at least 70% of the movie. Netflix's
popular shows include "Stranger Things" and "The Crown," and "The
Kominsky Method," starring Michael Douglas and Alan Arkin, recently
won a Golden Globe.
Meanwhile, subscriptions have grown at a blistering pace,
especially outside the U.S., even though occasionally Netflix
misses its own ambitious projections. The company has consistently
posted revenue growth of more than 30% and for 2018 is forecasting
$16 billion in revenue, up from $8.8 billion in 2016.
Profits have been thinner, largely because of the big content
investments. Netflix expects to post net income of about $508
million for 2018.
That has made the stock an expensive one by traditional
standards. Netflix's price-to-earnings ratio is 248.
In October 2017, Netflix raised the price for its standard plan,
its most popular offering, by $1 to $11 a month, while its premium
plan, which allows four simultaneous streams, went up $2 to $14.
With the latest increase, the premium plan costs $16 a month. The
standard and premium plans offer high definition; the basic
subscription doesn't.
The higher Netflix prices could have frugal customers rethinking
how much they spend on rival services.
To be sure, even with the latest increase, Netflix's offerings
are cheaper than typical cable-TV packages as well as many
direct-to-consumer programming services including CBS All Access
and HBO Go.
Write to Joe Flint at joe.flint@wsj.com
(END) Dow Jones Newswires
January 16, 2019 02:47 ET (07:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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