Netflix raises prices in US to cover soaring content costs

Netflix Inc (NASDAQ:NFLX) shares jumped on Tuesday after the streaming giant confirmed it is raising prices in the United States.

All three of the California-based company’s plans will increase in price by between US$1-2, with the standard plan rising to US$13 from US$11.

READ: Netflix reports blowout Q3

It is the second increase Netflix has introduced in less than two years and the most significant ever, with prices climbing as much as 18% depending on the plan.

UK prices have not changed, but subscribers in some countries outside of the US, such as Uruguay, Barbados and Belize which also pay in dollars, can expect increases too.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” read a company statement.

News of the hikes sent the stock up by 6.5% to US$354.64 in New York on Tuesday.

Q4 earnings this week

Netflix is raising prices to help pay for increasingly expensive content: last year it spent an estimated US$13bn on new films and TV series such as Bird Box and Ozark.

Competition for Hollywood’s best scripts and ideas is only like to heat up as well, with Disney and NBCUniversal due to launch their own streaming sites soon.

Netflix bosses have used subscriber growth to justify their ‘spend, spend, spend’ attitude and if analysts are right, the company will confirm in this week’s fourth quarter results that 2018 was its best ever year in terms of subscriber growth.

Investors soothed

The firm has been reluctant to raise prices in the past, opting instead to tap the debt markets to finance its hefty content and marketing spend.

Its long-term debt stood at US$8.3bn in September, up from US$6.5bn at the end of 2017.

Unsurprisingly, it is proving costly to service and in the first nine months of 2018, Netflix spent almost US$300mln on interest payments, compared with US$238mln for the whole of 2017.

READ: Netflix to raise another US$1.5bn in debt

So the company has turned to getting more money out of its growing subscriber base, a move which has pleased investors, who had been worried about the company’s staggering cash burn – the amount of money a firm spends above the cash its operations bring in.

Netflix expects to have burned through US$3bn last year and is guiding for a similar figure in 2019, before it starts to improve.

Story by ProactiveInvestors