Will Netflix raise prices?

Netflix expects to spend about US$6 billion on programming this year.

Netflix expects to spend about US$6 billion on programming this year.

Analysts wonder how long Netflix will be able to hold the line on price as its programming costs rise in tandem with its appeal to a more diverse international audience.

Movie and TV studios typically also demand more money as more people subscribe to channels to in an effort to make as much as possible off their content.

As it is, Netflix expects to spend about US$6 billion on programming this year.

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Netflix hasn't given any inkling it will raise prices again. It lost some long-time US subscribers after their rates went up by as much as US$2 per month last year. Netflix had previously frozen prices for millions of subscribers at 2014 levels.

But if it wants to keep investors happy, the company will eventually have to improve its relatively low profit margin.

A costly international expansion has depressed Netflix's profits. Netflix had piled up US$1.5b in operating losses on its international operations until the first quarter.


For all its success, Netflix still has a ways to go to catch up with HBO, the popular pay-TV channel that has served as its role model.

HBO has 134 million subscribers worldwide, including viewers paying for an internet-only version of the channel that was inspired by Netflix's success.

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Netflix is expected to reach 100 million subscribers this weekend.

Other cable channels also are offering internet-only options as more viewers, especially younger people, eschew traditional TV packages and subscribe to streaming services instead.

The trend has confronted Netflix with more competition in the battle for household entertainment budgets. 

Netflix so far has answered the challenge by spending heavily on original shows such as Stranger Things and House of Cards and selling its service at a relatively low price. 

"The model works from a consumer perspective because it is such a good value," said Wedbush Securities analyst Michael Pachter.


Over the past decade, "what really did it for Netflix was the explosion of phones and tablets that allowed people to watch video everywhere", said Pachter.

"But Netflix clearly had a vision before those devices became so ubiquitous."

About 51 million of Netflix's subscribers are in the US. By the end of this year, Piper Jaffray analyst Michael Olson expects the majority of the company's subscribers to be overseas. Netflix ended March with nearly 48 million subscribers outside the US.

Netflix chief executive Reed Hastings called the 100 million subscriber mark "a good start" in a letter reviewing the company's first-quarter results.

The understated reaction reflects Hastings' ambition to build the world's largest video channel.

The company's progress toward reaching that goal has helped drive Netflix's stock price progressively higher during the past five years, a stretch that has seen the video service add 72 million more subscribers.

Netflix currently has a market value of about US$63 billion.

 - AP


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