Netflix Hiking Prices to Fund Fight Against HBO, Plots Arrival on Your Cable Box
The price of "House of Cards" is about to go up as the Netflix-HBO rivalry escalates.
Sometime this quarter Netflix plans to raise its monthly prices for new customers by $1 to $2, the company said on Monday. People who already subscribe to the streaming video service would keep their current $7.99-a-month rate "for a generous time period."
"Over the last couple years we have been improving the content selection on Netflix and broadening it … If we want to continue to expand to do more great original content ...we have to eventually increase prices a little bit," Netflix CEO Reed Hastings said during a webcast to discuss the company's earnings. In addition to helping to acquire "much more content," the price increase would give the company more money to invest in its video-streaming technology, he said.
The price hike is Netflix's way of protecting its future as rivals like Amazon's Prime Instant Video and HBO step up their game. While Amazon bundles two-day shipping to its video service and HBO is packaged as an add-on to cable TV subscriptions, Netflix's sole selling point to consumers is its content. That makes its selection, and exclusives, even more important.
But Mr. Hastings said the real competition was between digital video and TV, calling Amazon's service "complementary" to Netflix. "The big theme is internet video taking share away from linear video," he said.
To that end, Netflix is adopting the brand-advertiser approach taken by traditional TV networks, such as HBO. Netflix has traditionally been a big direct-response advertiser that aimed its ads at people primarily to drive sign-ups in the short term.
"Original series represent a tremendous opportunity to raise awareness of, and build consumer enthusiasm for, the Netflix brand," the company said Monday. "We'll be investing more in marketing high-quality exclusive content, and spending less on direct response advertising such as banner ads touting free trials."
Netflix increased its marketing spend to $869.2 million in the first quarter of the year, up 18% from the first quarter of 2013, the company said in its earnings report.
Mr. Hastings said the brand-advertising strategy should enable Netflix to grow its market share.
Netflix underscored its competitive motivations as it detailed its subscriber numbers in Monday's filing. "We are approaching 50 million global members, but that is far short of HBO's 130 million. We are eager to close the gap," the company said. Netflix counted 35.7 million people in the U.S. who used its streaming-video service in the first quarter of 2014. Netflix aims to one day count 60 to 90 million U.S. subscribers, which Mr. Hastings said would be "two to three times larger than domestic HBO."
As part of that push against traditional TV companies like HBO, Netflix plans to more directly compete for eyeballs. It said that it will become available through some U.S. pay-TV services for the first time this quarter, starting with pay-TV services that use TiVo as a set-top box. That means subscribers will be able to flip from HBO to Netflix as if it were another TV channel, as opposed to switching to a separate device like Apple TV or Microsoft's Xbox gaming console.
Netflix recorded $1.3 billion in first-quarter revenue, up 24% to meet analysts' estimates. The company banked $53.1 million in net income, which is a big jump from the $2.7 million profit it nabbed a year ago.