Netflix Raise its Subscription Fee by $2 Following High Revenue
Netflix announced its earning on Tuesday and it shows a much better than expectation, thanks to its international market. Later this year, it plan to raise its subscription fee by $2 for U.S. subscribers.
CEO Reed Hastings in an interview with Market Watch regarding announcement of the company's fourth-quarter earnings told the plan to increase subscription fee. He did not mention exact time and said, "It's pretty simple, we'll let them know that on a certain date, the price will go up. It's pretty straightforward."
The company's fourth-quarter 2015 results outdid Wall Street expectations by a full 5 cents per share, generating $1.823 billion in revenue and $43 million in profit. Reed Hasting and team also successfully added 5.59 million viewers, boosting worldwide audience to nearly 75 million subscribers.
However, there is a trend of Netflix declining profits in the fourth quarter according to The Guardian. Netflix also said it anticipates higher turnover among existing subscribers in the coming two quarters. The fee increase is the anticipation by the company with a sophisticated term of "price grandfathering."
Recently Netflix have increased its standard subscription fee for new members to $9.99 from $8.99. The price grandfathering will affect its existing U.S. subscribers with more $2 subscription. Existing subscriber that pay $7.99 fee for standard high-definition service, including a facility to watch the content on two screens simultaneously.
The price increase may be used to support aggressive international expansion for this streaming giant. The company also look for raising more debt. Netflix CFO David Wells said, "You should assume the debt instruments are similar to the ones we've used in the past." In that regard, he refers to company's bonds, "We think we'll become a better credit risk in '17-'18. To date our bonds have traded pretty well."
The Verge acknowledged Netflix enormous growth. As its share price is up more than 121 percent in the last year, along with its international expansion which announced at Consumer Electronic Show in Las Vegas earlier this month. Netflix solidified its unique status as a broadcaster without borders.
Netflix, according to The Verge, is able to strip away many of the conventions and constraints of its peers in traditional television. Its business model is capable to expand to any place in the world and it is proven by its increase in international subscribers by more than 4 million in the fourth quarter. The company expects to sign up more than 6 million subscribers in the first quarter on this year, while analyst predicted a less number.
Although its international viewers increases rapidly, the growth in U.S. is experiencing a slowdown for some times. Therefore Netflix focuses on its international expansion and doing it aggressively. Its aggressiveness has created unrest in local streaming providers in the world, which initiated a dialogue to hinder its further expansion.
By adding $2 to U.S. subscribers, Netflix expects to generate more revenue to support its international expansion.