Will Netflix Price Increase Kill Growth?

Media

Published: May 10, 2014 10:12 am

Last Updated: May 10, 2014 10:13 am

Netflix (NASDAQ: NFLX) has elected to increase prices. And, the decision could well hurt its growth, even if it expands margins

In a blog posted Friday, the company reported:

To continue adding more movies and TV shows, we are increasing the price of our $7.99 a month streaming plan by one dollar to $8.99 for new members. Current Netflix members get to keep their current price for two years, enjoying HD-quality movies and TV shows on any two screens at the same time.

We are also introducing a new $7.99 plan with SD-quality viewing on any one screen at a time. As always, members can change plans at any time. New members get a free trial of whichever plan they prefer.

“Free trial” or not, there is a price point at which people will decide to still with cable VOD, or use similar services from their satellite providers

READ MORE: An Amazon Streaming Video Price Increase

Netflix’s natural enemies, particularly Apple Inc. (NASDAQ: AAPL) and Amazon.com Inc. (NASDAQ: AMZN), have an opportunity to take advantage of the move. The Apple TV hardware costs $99. Apple’s reputation for easy-to-use consumer electronics almost certainly helps it make this sale. And Apple allows people to both rent and buy movies. Netflix may have a huge library of films, but Apple offers subscribers more flexible way to use its content.

Amazon may have made the same problem Netflix did by raising prices on the suite of products which include its movie and TV streaming systems. Three months ago, it raised the price of its “Prime” service cost to $99 a year from $79. However, Prime is not a streaming product. It is a bundle which includes an e-book sharing library, which leverages its huge Kindle e-reader base, and “free shipping” which subscribers can use when they buy one or more of the hundreds of thousand of products Amazon sells.

The other challenge the Netflix rate increase represents is whether it hurts its standing with Wall St. which expected Netflix to continue to grow rapidly. Its revenue in the last quarter was $1.27 billion, up 24% from $1.02 billion a year ago. If that growth decelerates, investors will revolt.

With both consumers and Wall St., Netflix has decided to hedge profit improvement against revenue.

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