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Netflix is raising its subscription prices

Netflix is raising prices in the United States as the streaming service invests heavily in new programs....

Posted: Jan 15, 2019 4:03 PM
Updated: Jan 15, 2019 4:03 PM

Netflix is raising prices in the United States as the streaming service invests heavily in new programs.

All three of the company's plans will increase in price by $1-$2. The standard $11 plan, for example, will increase to $13 per month.

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The price hikes will be applied to all existing members over the next few months. New members will be charged the new price immediately. Its $8 plan will go up to $9 and its $14 plan will go up to $16 a month.

Netflix (NFLX) stock spiked 6%.

Netflix has been spending billions on new content — at least $8 billion last year, based on the company's own expectations from 2017. The streaming service also announced in October that it planned to take on $2 billion in new debt.

The new price hike could help keep investors happy, said Tuna Amobi, a media analyst at CFRA research.

With Netflix "frequently tapping the debt markets on several recent occasions, the price hike could help ease concerns with a growing deficit on free cash flow," he wrote in a research note Tuesday, adding that the company will likely continue to ramp up its spending on content. Netflix said last quarter that it was expecting negative free cash flow of $3 billion in 2018, and has similar expectations this year. Free cash flow measures how much cash is generated after the company covers investments in its business.

So far, though, Netflix's spending seems to be paying off in at least one important way. The company reported last quarter that it had more than 58 million subscribers in the US, and 137 million globally.

The company projected last fall that the number of subscribers worldwide will jump to 147 million when it next reports earnings. And at least one analyst sees reason for optimism, at least stateside: Piper Jaffray's Michael Olson wrote in a report last week that the streamer will add more subscribers in the U.S. than Wall Street is expecting, based on an analysis of search trends for Netflix on Google.

Netflix will reveal more about its latest subscriber numbers Thursday when it reports earnings. There will be some tweaks to the formula, however — the company will no longer highlight people who have a free trial for the service, a number it says adds "noise to our membership forecasts."

The streaming business gets crowded

The price hike comes as new competitors enter the streaming space. Disney+, the company's new streaming service, will launch this year and will include original content from its most popular brands such as "Star Wars" and Marvel.

NBCUniversal announced on Monday that it will launch a streaming service for its own slate of content in 2020.

The new service from WarnerMedia, CNN's parent company, will offer different tiers to its subscribers. That includes an entry level option that will focus on films and a premium version that will have original programming along with blockbuster films.

Then there's the arguably the biggest unknown of them all: Apple. The company is likely to launch its own service sometime in the first half of the year.

Awards and content glut

Critics have expressed concern that Netflix has been putting out too much programming at the expense of quality, but those fears have subsided recently as the streamer racks up awards and recognition for several of its originals.

Netflix won five awards at the Golden Globes earlier this month. Two of those awards went to the company's art house film, "Roma," which is already getting Oscar buzz.

Netflix also closed out 2018 with its biggest hit yet. "Bird Box," a horror film starring Sandra Bullock, became a social media phenomenon and Netflix's most-watched movies in its history, according to the company. Netflix claimed that more than 45 million accounts watched the film in its first week of release.

Still, there there are concerns about what would happen to Netflix's subscriber count if competitors were to pull their licensed content from the service to make it exclusive to their own streaming services, as Disney has promised to do.

The Internet had a meltdown last month when it was rumored that Warner Bros. was pulling "Friends" from the service. Netflix and Warner Bros. made a deal to keep the sitcom on the service for 2019. That deal didn't come cheap, however, costing Netflix a reported $100 million.

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