Netflix to raise subscription prices by up to $2, adds 2.25M U.S. subs in Q1

Netflix (NASDAQ: NFLX) will increase its monthly streaming subscription price by one to two dollars, "depending on the country," this quarter, CEO Reed Hastings and CFO David Wells wrote in a letter to shareholders this afternoon. The announcement coincided with the release of Netflix's first quarter results, in which the company notched 2.25 million new customers in the United States.

Although the company is raising its rates--it currently charges U.S. users $7.99 per month for its streaming service--Netflix said its U.S. subscribers will enjoy a "generous time period" during which their subscription rates will not increase.

Netflix has been toying with different subscription models during the past few months, such as a cheaper option which limited subscribers to streaming on just two devices simultaneously. The provider raised its rates for new subscribers in Ireland this January, from €6.99 to €7.99. Existing Irish subs were grandfathered in at the original €6.99 rate for two more years, so it's not a stretch to assume that U.S. rates will be held for perhaps that long.

"These changes will enable us to acquire more content and deliver an even better streaming experience," Hastings and Wells wrote. Netflix said in its 2013 annual report that it had contracted to pay nearly $3 billion in content licensing obligations in 2014.

The subscription hike overshadowed the release of Netflix's first quarter results. Netflix also revealed that it expects revenues for its international segment to eventually surpass its U.S. business.

Netflix added 2.25 million new customers in the United States during the first quarter, up from the 2.03 million it added in the same quarter a year ago. Netflix now counts a total of 35.7 million subscribers in the U.S. market and 48 million worldwide.

Netflix saw revenues of $1.27 billion and a net income of $53 million in the first quarter. It reported free cash flow of $8 million, and recorded earnings per share of 86 cents, up from 81 cents in Q4, beating analyst expectations.

Netflix forecast slower U.S. subscriber gains in Q2, about 0.11 million less than the same period in 2013, "due to increased seasonality," the company said in its investor letter. And while free cash flow should be all right through the second quarter, the provider expects a Q4 reduction due to "further international expansion in the second half of this year reducing net income."

Interestingly, Hastings and Reed addressed the proposed Comcast-Time Warner Cable merger in the investor letter. "The combined company would possess even more anti-competitive leverage to charge arbitrary interconnection tolls for access to their customers," they wrote. "For this reason, Netflix opposes this merger."

Investors cheered Netflix's first quarter results, raising the company's shares around 6 percent in after-hours trading.

For more:
GigaOM has this article
- Netflix has this investor letter (.pdf)

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