Netflix price hike

May 10, 2014 5:36 AM

Streaming service Netflix have released the first details of its price hike. They have raised the price of its admission fees, but this time allowing existing members a few years to get accustomed to the idea. New members to the streaming service will be expected to pay more following the price hike. American and Canadian subscribers will have to shell out an extra dollar a month, with the fee rocketing to US$8.99. Current subscribers will pay the current fee for two years before they are charged a little more every month. The price hike enables members to stream Netflix content in high definition on two screens simultaneously. New UK users are expected to pay an additional extra pound with a monthly fee of 6.99 pounds. European subscribers will pay 8.99 euros. Netflix is available in Norway, Denmark, Sweden, Finland and the Netherlands, with Germany and France attaining Netflix by the end of the year.

Online streaming service

Online streaming service

It is fairly evident that revenue is undeniably on Netflix’s agenda with this price hike decision. However, the company may also be countering competitive pressures. For instance, recently Amazon has increased the annual fee for Amazon Prime membership, allowing customers with unlimited two-day shipping on certain products, including other benefits with access to the Amazon Instant video service. Netflix has previously attempted to restructure its fee system. In 2011, it revealed plans to spin off the long-standing DVD-by-mail service as a separate company, with an extra charge for video game rentals. This wasn’t received lightly by Netflix members. However, this current fee readjustment is unlikely to cause customer backlash.

“This is far less confusing, and while no one wants to pay more, the grace period eases the pain for existing customers who are unlikely to go elsewhere”, Greg Scoblete, editor at RealClearWorld and RealClearTechnology stated. “This time, Netflix said they won’t raise prices on existing customers yet, only new customers. This will give their existing customers some time to get comfortable with the idea of rising prices”, telecom analyst Jeff Kagan claims. He also asserts that Netflix’s price increase comes down to one factor, “as they continue to expand internationally and in the U.S., they have no choice but to raise rates because content licensing is expensive”. The fee increase is intended to help fund Netflix’s expansion.

Netflix CEO Reed Hastings

Netflix CEO Reed Hastings

 

Netflix had indicated the price increase last month when it revealed its earnings result for the first quarter. During that time, CEO Reed Hastings announced that majority of the revenue gains resulting from the increased prices would help to fund Netflix’s budget for content. He states, “If we want to continue to expand…we have to eventually increase prices a little bit”. Netflix’s total global membership is currently 48 million with a recent addition of 2.25 million new subscribers. Hastings believes the success behind Netflix’s original programming was due to its membership increase. It will be presenting a more reasonable package at the initial price. The 5.99 pound option limits your streaming resolution to standard definition and only allows you to stream to one screen at a time. For 8.99 pounds you can stream to four screens in ‘Super HD’. Hastings has informed that raising subscription fees would help Netflix “acquire more content and deliver an even better streaming experience”. Netflix have to be cautious about not losing any existing customers due to the price hike. Only time will tell whether customers are satisfied with the new decision undertaken by Netflix.

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