DIS Walt Disney Co

By Joe Flint 

Netflix Inc. raised prices for all of its subscription plans, a move that fortifies the streaming-video giant's aggressive spending on content in the face of stepped-up competition.

Netflix, which last raised its prices in late 2017, will increase the cost of its most popular plan by 18% to $13 a month, from $11. That plan allows users to stream on two screens at the same time. The most basic plan, which allows a single stream, will go up one dollar, or 13%, to $9 a month.

Raising prices will help Netflix swallow higher content costs as the streaming TV wars intensify. An array of companies -- from Amazon.com Inc. and Hulu to new entrants like AT&T Inc. and Walt Disney Co. -- are seeking to secure the premier movie and TV rights that will attract subscribers. Netflix is already a heavy spender, and those outlays will likely rise further amid the competition.

The company's shares rose 6.5% to $354.64 on Tuesday. Netflix has increased its revenue at a rapid pace over the past several years, but it hasn't generated huge profits, and investors have been watching to see if the company would turn up the lever on pricing.

The new rates will go into effect immediately for new customers in the U.S. and be applied to the accounts of existing U.S. customers in the next few months, according to a person familiar with the plans. The increases will also apply to countries in Latin America and the Caribbean where Netflix 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 for the benefit of our members," a Netflix spokesperson said Tuesday.

The increase in monthly subscriber fees comes as Netflix continues to spend heavily to woo talent to its streaming service. The company already has reached long-term deals costing hundreds of millions of dollars with powerful Hollywood producers such as Shonda Rhimes and Ryan Murphy. Industry analysts expect Netflix this year will spend $12 billion licensing and creating content, more than double what it spent just two years ago.

New streaming competition could drive up costs further. Walt Disney Co. Disney and AT&T's WarnerMedia are launching their own subscription streaming services to compete with Netflix later this year. Comcast Corp.'s NBCUniversal on Monday disclosed plans to launch an ad-supported streaming service in 2020 that will be free for Comcast pay-TV subscribers and available for a monthly fee to those who have canceled their cable TV packages, known as cord cutters.

All those traditional players are considering ending some content-licensing deals with Netflix, retrieving reruns of popular shows they produce in order to feed their own streaming services. Disney has already indicated that its movies and TV shows in the future will be reserved for its own streaming effort.

Last month, WarnerMedia struck a deal ensuring that its hit show "Friends," which has been available on Netflix, will be able to move to WarnerMedia's service when it launches.

That could become a headwind for Netflix, or at least force it to pay more to retain certain shows.

Hulu, the streaming service owned by Disney, Comcast and 21st Century Fox, is also an aggressive bidder for content. It has 25 million subscribers after strong growth last year driven by discounts to entice new subscribers.

So far, Netflix's strategy of betting big on programming appears to be paying off. Netflix is coming off one of its most successful original-programming efforts with the movie "Bird Box," which it said had a record-setting first week with 45.3 million of its 137 million accounts watching at least 70% of the movie. Netflix's popular shows include "Stranger Things" and "The Crown," and "The Kominsky Method," starring Michael Douglas and Alan Arkin, recently won a Golden Globe.

Meanwhile, subscriptions have grown at a blistering pace, especially outside the U.S., even though occasionally Netflix misses its own ambitious projections. The company has consistently posted revenue growth of more than 30% and for 2018 is forecasting $16 billion in revenue, up from $8.8 billion in 2016.

Profits have been thinner, largely because of the big content investments. Netflix expects to post net income of about $508 million for 2018.

That has made the stock an expensive one by traditional standards. Netflix's price-to-earnings ratio is 248.

In October 2017, Netflix raised the price for its standard plan, its most popular offering, by $1 to $11 a month, while its premium plan, which allows four simultaneous streams, went up $2 to $14. With the latest increase, the premium plan costs $16 a month. The standard and premium plans offer high definition; the basic subscription doesn't.

The higher Netflix prices could have frugal customers rethinking how much they spend on rival services.

To be sure, even with the latest increase, Netflix's offerings are cheaper than typical cable-TV packages as well as many direct-to-consumer programming services including CBS All Access and HBO Go.

Write to Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

January 15, 2019 20:11 ET (01:11 GMT)

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