Four months after launching in Australia Netflix is tipped to lift prices after reporting a 63% plunge in profits.
Last week Netflix said that they have added 3.28 million streaming subscribers in the June quarter of which more than one million is believed to have come from the launch of their Australian service in March.
The company now has more than 65 million subscribers worldwide, with 42 million of those in the US where the monthly price rises will initially kick in.
The problem for the giant streaming Company is that the cost of their third-party content from movie houses and TV stations remains 4.6 times its net revenue at $7.7bn.
The service that is believed to have hit Foxtel “hard” according to analysts is proving extremely popular in Australia, however the Company is now negotiating new content for the Australian market due to the increased revenue streams from the Australian market.
Profits fell 63 per cent in the quarter as costs increased to buy and create content, now the strong U.S. dollar is lowering the value of revenue generated in Australia where the Company is tipped to lift the basic price of the service from $8.99 to $9.99 which is still significantly cheaper than a Foxtel subscription.
Speaking to investors recently, Netflix CEO Reed Hastings revealed that the company would be pushing up subscription prices starting in the USA over the coming year. There was no mention of when Australian prices will rise.
Hastings said that the company was preparing to carefully push consumers toward higher-priced plans in an effort to improve profits.
Another problem facing the Australian market is password sharing with the Company tipped to be less tolerant of widespread password sharing in the near future.
The company has a one-stream, standard-definition package priced at $8.99 a month, but “we also want to motivate people to move up to the two-stream and the high-def and the ultra-high-def”, Hastings said, though he didn’t elaborate on what the incentives to switch plans would be.
Currently several carriers in Australia including Optus, Telstra and iiNet are addressing the impact that Netflix has had on their networks.
Hastings said on a webcast to investors that if carriers charged for traffic the process would “set up a very ugly industry structure” and ultimately lead to consumer blackouts during negotiations.
Hastings likened pay-to-play peering for heavy traffic drivers like Netflix to the frustrating battles that have cut off subscribers in the USA from channels like CBS and AMC for days or even months.
