Netflix surges as users shrug off higher prices

Bloomberg

Netflix Inc. used to worry it would alienate customers by raising prices for its streaming service. Not anymore. The company posted its strongest first quarter since going public 16 years ago, despite raising prices for most of its customers over the past several months. Los Gatos, California-based Netflix added 7.41 million users in the period, accord-ing to a statement, easily topping analysts’ projections.
The results, including higher earnings and an upbeat forecast, were welcome news to investors. Netflix rose 9.2 percent to a record close of $336.06 in New York. The stock is up 75 percent this year, leading the S&P 500 index.
Raising prices enabled Netflix to boost sales 40 percent last quarter and quiet investors who fret about all the money the company spends on original series and movies. Netflix will spend $7.5 billion to $8 billion on programming this year to lure more customers to its online TV network, which now boasts 125 million subscribers worldwide.
“You have to earn it by doing spectacular content,” Chief Executive Officer Reed Hastings said on a call with investors. “If you do that, you can get people to pay more because then we can invest.”
Hastings hasn’t forgotten when a price increase almost took down the company. The stock stock price fell precipitously and subscribers canceled over a few months in 2011 after the company split its streaming service from its DVD-by-mail service, a move that amounted to a 60 percent price increase for customers who wanted to keep both.
Yet a growing segment of the population forgave and forgot, replacing live TV services with Netflix’s on-demand library, even as the company’s average US subscription price rose 12 percent in the past year. The popularity of the service surged in the US once Netflix began funding original series, such as “House of Cards” and “Orange Is the New Black.”
The production pipeline has since increased to levels that rival the world’s largest media companies. Netflix will release about 700 original pieces of programming this year, including about 80 movies (more than any studio), more than one stand-up special a week and as many unscripted series as any US cable network.
Worth about $20 billion at the end of 2014, when it had only released a handful of original shows, Netflix surpassed $145 billion in market value. Chief content officer Ted Sarandos has used the company’s rise to lure some of the top creative minds from rival studios.
In February, producer Ryan Murphy agreed to leave 21st Century Fox Inc., where he made “American Horror Story,” for a deal at Netflix worth a reported $300 million.