Netflix Raises Monthly Prices by $1 but Gives Existing Customers a Two-Year Breather

Netflix is raising its Internet video prices by $1 per month for new customers and giving its current U.S. subscribers a two-year break from the higher rates.

The changes mean anyone signing up for Netflix's video subscription service beginning Friday will pay $9 per month for in the U.S. The old price of $8 per month will continue until May 2016 for Netflix's existing 36 million U.S. subscribers.

The price increase, Netflix's first in nearly three years, isn't a surprise. The Los Gatos, California-based company disclosed its plans to raise its rates last month without specifying the precise amount.

Netflix Inc. says its needs more money so it can afford to pay for more original programming along the lines of its Emmy award-winning political drama "House of Cards" and critically acclaimed series "Orange Is the New Black." The emphasis on video that can only been seen on Netflix has become a major drawing card for the company as it strives to create the Internet's equivalent of Time Warner Inc.'s HBO cable network.

By delaying the price increase for current subscribers, Netflix hopes to avoid the backlash that it faced in 2011 when it raised its prices by as much as 60 percent.

The company lost about 800,000 customers within a few months in an exodus that alarmed investors, causing Netflix's stock to plunge by more than 80 percent in a year. Netflix eventually lured back subscribers and revived its customer growth, lifting its stock to record highs earlier this year.

Netflix's stock rose $2.65 to $324.31 in early afternoon trading Friday. The shares have fallen by 13 percent so far this year.

Prices for Netflix's rapidly shrinking DVD-by-mail service aren't changing. Those rates range from $5 to $20 per month, depending on how many DVDs are being rented and whether a Blu-ray option is included. Netflix ended March with 6.7 million DVD subscribers, a nearly 50 percent drop from 2 and half years ago.

New Internet video customers can avoid the higher price if they are willing to settle for a little less clarity and flexibility. Netflix is also introducing a new $8 per month plan that will only show standard-definition video and limit viewership to just one screen.

Netflix normally offers high-definition video and allows subscribers to watch on up to two different screens. That means two people sharing the same subscription can simultaneously watch Netflix videos on different devices with high-speed Internet connections. The company already charges $12 per month for a subscription plan that allows video to be simultaneously streamed on four different screens.

Subscription prices also will be increasing by the equivalent of about $1 month in Netflix's markets outside the U.S. The company ended March with nearly 13 million international customers in more than 40 countries.

© Thomson Reuters 2014