Streaming giant Netflix (NFLX) is raising prices ahead of the premiere of its second season of the nostalgic 1980s-themed blockbuster "Stranger Things," scheduled to be released on Oct. 27. Netflix last hiked U.S. prices in October 2015.
The company confirmed in a statement that it will keep its basic plan price at $7.99 per month. Prices for what it calls its "standard" plan will rise by $1 to $10.99 per month and "premium" plans will rise by $2 to $13.99.
The prices go into effect for new members signing up for plans beginning on Oct. 5. Current subscribers will be notified about increases on Oct. 19, and the company said "the price change will roll out to members over the course of the next several months."
Why is Netflix raising prices?
The increases are being driven by Netflix's desire to fatten its profit margins as it spends more money to finance a critically acclaimed slate of original programming that includes franchise shows such as "House of Cards," ''Orange Is The New Black" and "The Crown," in addition to "Stranger Things."
Those series' success helped Netflix land more Emmy award nominations than any TV network besides HBO this year. It's also the main reason Netflix's U.S. audience has nearly doubled since the February 2013 debut of "House of Cards" kicked off its expansion into original programming.
But paying for exclusive TV series and films hasn't been cheap. Netflix expects to spend $6 billion a year alone on programming this year, and the expenses are likely to rise as it competes against streaming rivals such as Amazon, Hulu, YouTube and, potentially, Apple for the rights to future shows and movies.
Both Amazon (at $99 per year, or about $8.25 per month) and Hulu ($10 per month) now offer lower prices than Netflix.
Possibility of price increase backlash
Netflix believes its price rate is justified by recent service improvements, such as a feature that allows people to download shows onto phones or other devices to watch them offline.
But Netflix subscribers have rebelled against price increases in the past, most notably in 2011 when the company stopped bundling its streaming service with its DVD-by-mail service, resulting in price increases of as much as 60 percent for customers who wanted both plans. Netflix lost 600,000 subscribers and its stock price plummeted by 80 percent in the subsequent backlash. The company rebounded strongly, though, propelling its stock from a split-adjusted low of $7.54 in 2012 to about $184 now.
And Netflix blamed a temporary slowdown in subscriber growth last year on the lifting of its price freeze on long-time customers who decided to drop the service rather than pay slightly more money.
Wedbush Securities analyst Michael Wedbush believes less than 10 percent of current subscribers will cancel Netflix as prices rise again, but he predicts it will be tougher to attract new customers who will choose cheaper alternatives from Amazon or Hulu.
Netflix stock rose more than 3 percent in Thursday's morning trading session as investors cheered the news. Netflix will report third quarter earnings on Oct. 16.
The Associated Press contributed to this report.
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