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The Journal Gazette


  • Associated Press
    Netflix reported 370,000 new U.S. subscribers in its third-quarter earnings report Monday. In the same period last year, it had 880,000 new customers.
October 18, 2016 1:03 AM

Price hike hurting Netflix

Original programming results in higher costs

MICHAEL LIEDTKE | Associated Press

SAN FRANCISCO – Netflix is testing the financial limits of its streaming video service as the rising cost of producing original programming pushes up subscription prices.

The latest reminder came Monday with the company’s third-quarter earnings report, which revealed that Netflix added 370,000 U.S. subscribers. That marks its second consecutive quarter of slowing U.S. growth since lifting a two-year rate freeze and increasing prices by as much as 20 percent for more than 20 million existing subscribers.

While the latest quarterly subscriber gain exceeded management’s modest projections, it fell far below the 880,000 U.S. customers that Netflix picked up at the same time last year. The deceleration occurred even though the latest period included the July debut of “Stranger Things,” which turned into one of the summer’s surprise hits.

Netflix is now faring far better overseas as it tries to diversify its video library to suit the tastes of 189 other countries. The company added 3.2 million international subscribers in the third quarter, surpassing the 2.7 million it gained at the same time last year when it was operating in about 130 fewer countries.

Investors were thrilled with the international progress and the better-than-expected showing in the U.S. Netflix’s stock surged nearly 20 percent to $119.49 in extended trading.

The drop-off in U.S. subscriber gains underscores the delicate balancing act the company is trying to pull off as it tries to retain and attract customers while also financing an ambitious expansion overseas amid fierce competition from Amazon and HBO.

It’s an expensive challenge, which is why Netflix raised the price for its most popular U.S. plan from $8 to $10 per month. And the pressure to continue increasing rates every few years seems likely to continue.

On average, Netflix said, it is collecting 10 percent more from its subscribers worldwide than a year ago. About 25 percent of the U.S. subscribers still covered by the rate freeze imposed in 2014 will have their prices raised by year’s end.

Netflix does not disclose how many of its subscribers cancel each quarter, but Wedbush Securities analyst Michael Pachter estimates that about 1 million U.S. households opened new accounts from July through September. That means about 600,000 subscribers abandoned the service during the third quarter, if Pachter’s calculations are accurate.