Netflix is raising prices in the U.S. for its subscription video streaming service, and the move could very well signal strong growth ahead when the company announces fourth-quarter results this week.
The price for Netflix’s most basic tier, which allows viewing on only one screen at a time and doesn’t include HD video, will climb from $8 per month to $9. The price for the Netflix’s most popular tier, which allows viewing on two screens at a time and includes HD video, will jump from $11 per month to $13. And the company’s highest tier, which allows up to four screens at once and include Ultra HD video, will increase from $14 per month to $16.
It’s the biggest price increase so far for Netflix’s streaming service, and it will impact all 58 million subscribers in the U.S. The new prices are already reflected on Netflix’s website for new subscribers, and the increase will roll out to all existing subscribers over the next few months. According to AP, the price increase will also affect some subscribers in Latin American countries where the service bills in U.S. currency.
"We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience," the company said in a statement.
Netflix is scheduled to release its fourth-quarter earnings Thursday, and today’s price hike could signal that the company will announce strong results. The company ended the third quarter with 137 million total subscribers (more than 130 million of those paid memberships). The company projected it will add 9.4 million new subscribers (7.6 million paid memberships) in Q4. The company is expecting to add 1.5 million paid memberships in the U.S.
Back when Netflix last raised prices—in late 2017—then-UBS analyst Doug Mitchelson said the price increase likely indicated strong subscriber growth in the U.S.
“We would expect mgmt. would be unlikely to implement such a price increase if U.S. subscriber trends were disappointing, bolstering our confidence further. Further, we expect less speculation this time as to what the price increase means for future content spending given 2018 has already been indicated at +$1b Y/Y,” wrote Mitchelson in a research note.
But while it’s still unclear what type of results Netflix will announce this week, the price hike is a strong indicator that Netflix needs to keep increasing revenues to cover the vast amounts of investment in original shows and movies.
Netflix stock jumped this morning upon news of the price increases. But over time, the increased cost could potentially result in fewer new subscribers and lead existing subscribers to quit the service.