Netflix Inc. is raising monthly fees for its U.S. subscribers by between 13 percent and 18 percent, the video streaming pioneer’s first price increase since 2017 as it spends heavily on original content and international expansion.
Prices for its popular standard plan, which allows streaming on two devices at the same time, will rise to USD 12.99 per month from USD 10.99, the company said in a statement.
Netflix shares rose 6.5 percent to close at USD 354.64, adding to their 30 percent rise so far this year.
The company’s top-tier plan, which allows streaming on four screens in high definition, will increase to $15.99 from USD 13.99 per month, while the fee for its basic plan will rise to USD 8.99 from USD 7.99.
In comparison, AT&T Inc’s (T.N) HBO Now streaming service charges USD 14.99 per month, while Hulu’s no-advertisements plan is priced at USD 11.99 per month.
“It highlights that Netflix has pricing power and even after the increase it remains a very cheap entertainment alternative,” Pivotal Research Group analyst Jeff Wlodarczak said.
Netflix has been spending billions to bolster its original content, which boasts award-winning shows such as “The Crown,” “Black Mirror” and “Wild Wild Country” to fend off intensifying competition from players such as Amazon.com’s (AMZN.O) Prime Video service and Hulu. The company reported it had 137 million customers at the end of September.
The price hikes are expected to fetch Netflix hundreds of millions of dollars, ahead of the launch of streaming services from AT&T and Walt Disney Co.
While aggressive spending – a planned USD 8 billion in 2018 – has led to a surge in subscriber growth, its debt doubled to USD 6.50 billion in 2017 from USD 3.36 billion in 2016.
The company is expected to have a debt level of USD 8.33 billion in 2018, according to Daniel Morgan, senior portfolio manager at Synovus Trust Co, which owns 15,019 shares of Netflix.
Netflix is scheduled to report its fourth-quarter results after market close on Thursday.
“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 to fund a likely continued escalation in Netflix’s content spending, which likely topped USD 13 billion in 2018,” CFRA analyst Tuna Amobi said.―Reuters