Netflix plans to increase rates about $1 to $2 per month for new customers. Current customers, which number around 36 million, will continue to pay $8 per month at least for the next year.
CEO Reed Hastings says Netflix customers will benefit from the price increase in the long run.
"When we look at the shows and movies that we will be able to get if we have a bigger budget, it's exciting," said Hastings in an Associated Press interview. "We want to make the service better and better so more people will join."
The decision to hike prices comes shortly after Netflix reported impressive first quarter sales and earnings. Netflix needed a solid quarter to finance its ambitious plans, but it also feels a price increase is justified in order to cover the rising costs of licensing and other expenses. Competition from cable television subscription channels like HBO and newer entries into the marketplace, like Amazon.com and Microsoft, is fierce and expected to worsen.
"I think they need to raise the price to remain profitable," said Wedbush Securities analyst Michael Pachter when asked about Netflix.
Netflix has increased prices in the past and upper management hasn’t forgotten the customer response in 2011 when it increased prices as much as 60 percent. Netflix watched in horror as 800,000 subscribers dropped its services following the 2011 price hike decision. This time, though, the increase is much smaller, the economy is stronger, and Netflix has improved its services. Today’s declaration isn’t expected to cause such an extreme customer backlash.
Netflix price increase decision seems to be resonating well with at least one group of people: Its investors. The stock is up over six percent in early trading.