Netflix Price Hike

The online video service is planning its first US price hike since 2011 — the year it lost thousands of subscribers after a failed attempt to split its DVD rental and on-demand services. Chief Executive Reed Hastings provided hazy details about Netflix’s planned rate hike, which he downplayed as modest, during a webcast Monday discussing the company’s first quarter results.

“You’re talking about a dollar or two difference,” he said.

The downplayed, foggy announcement stands in stark contrast to the last instance of a US Netflix price hike, one that outraged members and triggered a wave of defections as management attempted — unapologetically at first — to shove through a 60 percent increase. In 2011, Netflix said it would cleave its DVD-by-mail service from its streaming one. The DVD spinoff would be called Qwikster, and rather than a combined $9.99 bill for both, customers would pay $7.99 for each. The move enraged customers and a chastened Netflix company ultimately aborted the spinoff idea, but not without losing 77 percent of its stock’s value in four months and 800,000 subscribers.

The company hasn’t touched a US price increase in the three years since, but its ambition to become a must-have part of every consumer’s TV budget has driven Netflix to spend more on licensing top content and creating high-budget original programming of its own.

Hastings said that most of the added revenue from the price increase would be diverted back into the company’s content budget, which is where most of its spending goes, and that a hike in price was inevitable. “If we want to continue to expand…we have to eventually increase prices a little bit,” he said. The company invests in content by licensing television and movies made by others — such as a deal to get top movies from Disney on its streaming service quickly after they leave theaters — and increasingly by creating its own television-style programming like “House of Cards” and “Orange Is the New Black.” Original content makes up less than 10 percent of the company’s total content spending.

The executive said the company is still deciding how long current subscribers would be “grandfathered” in — that is, how long current members would continue paying their current rate before the higher price applies to them.

Read more at CNet.com.