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Netflix stock jumps on news of subscription fee hikes

04/22/2014 01:03 EDT | Updated 06/22/2014 05:59 EDT
Netflix stock, already one of Nasdaq’s high flyers, jumped 6.5 per cent today to $371 US after the streaming service announced it would raise subscription prices.

Netflix, which has committed to sink millions into new series over the next few years, said subscription prices for new members would increase $1 to $2, “depending on the country.”

The new member increase has already gone over well in Ireland, the company said Monday, after releasing its first-quarter financial reports.

In Ireland, new subscribers are now paying €7.99 ($12.16 Cdn) a month, up by one euro, though existing members are locked in at the old  €6.99 ($10.64 Cdn) per month price for two years.

In its letter to shareholders, Netflix announced it would be bringing in an increase, the first since 2011, for its new U.S. subscribers.

It is not known if a similar increase was in line for Canadian subscribers, but the letter did hint that it is certainly being considered.

Letter sets out price hike plans

“We have greatly improved our content selection since we introduced our streaming plan in 2010 at $7.99 US per month. Our current view is to do a $1 or $2 increase, depending on the country, later this quarter for new members only,” the letter said.

The delayed price increase appears to be a tactic to avoid a backlash like the one Netflix experienced in 2011, when it lost about 800,000 subscribers after a price increase.

Investor reaction Tuesday indicates the market approves of the strategy and believes Netflix is so central to most TV lovers, that it will absorb the increase.

The stock was trading at $85 this time last year, but hit a peak of $458 last month until Nasdaq was hit by a bear run over investor concern about high-flying tech stocks.

Netflix has increased its subscriber base to 34 million households in the U.S. and presents a formidable competitor to paid TV and conventional TV.

Worry over cost of broadband

In addition to the cost of making series such as Orange is the New Black and House of Cards, it is dealing with increased costs by internet service providers who are raising their prices to combat the growing demand for video streaming.

It is also facing the fact that Comcast could control the price of high-speed broadband for 60 per cent of American households after it completes its purchase of Time Warner Cable.

A call to Netflix to ask about its plans for the Canadian market was not returned.

In Canada, broadband prices to consumers are already higher and reception is already poorer – that may weigh against a Netflix price increase. The range of selection for the Canadian service is also less extensive than that in the U.S.

But Canadians have fewer competitors for similar services. Amazon’s Prime isn’t offered here, nor is Hulu.

Netflix says it has yet to make money on its collective international operations and predicts a loss next year as well.

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