Will Netflix Price Increase Kill Growth?

By Douglas A. McIntyre Published May 10, 10:12AM EDT

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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.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.