Netflix’s sharing crackdown is paying off but prices are still rising

Netflix says the shows it has licensed, including Suits, have been key to recent success

Netflix is raising prices for some of its subscription plans, despite the success of its recent crackdown on password sharing.

The streaming giant said monthly charges for some of its advert-free options would increase in the US, UK and France by up to $3.

The move reflects the company’s growing confidence, after it added 8.8 million subscribers from July to September.

That was the most in more than two years, sending Netflix shares surging.

Netflix increased the US price of its premium ad-free plan by $3 per month to $22.99. The cost for premium rose by £2 to £17.99 ($21.84) in the UK and by 2 euros to €19.99 ($21.06) in France.

It has been facing doubts about whether it can continue to draw in new members, as competition rises, prices climb and a Hollywood strike delays new releases.

In the first half of last year, it lost about one million subscribers, sending alarm bells ringing.

Much of the subscriber growth in the most recent quarter was driven by its move to start charging an extra fee – which amounts to a little less than half the £10.99 cost of its “standard” advert-free plan – to have more than one household on the same account.

The launch of a cheaper plan, with adverts, accounted for about 30% of sign-ups in countries where it was available, Netflix said.

“All-in-all, management’s working hard to squeeze every last drop of cash possible from the available subscriber base,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

“As that cup begins to run dry, it will be a lot more important to understand exactly how successful the next phase of growth can be.”

Netflix said it believed it had the right mix of original hits and licensed fan favourites in its library to keep audiences coming, spotlighting Suits, the legal drama now known for starring Meghan Markle.

First released in 2011 on an American network, the series spent several weeks among the top 10 of Netflix’s most-watched English television shows over the summer, racking up more than a billion viewing hours globally.

Netflix, which has been emphasising its own productions in recent years, said in its quarterly update to investors that licensing had always been important and it saw potential opportunities to license more hits “as the competitive environment evolves”.

Analysts said licensed material was likely to prove increasingly important, as audiences feel the hit of the Hollywood strikes that have shut down new productions for several months.

Writers recently reached a deal, but the actors guild and the major studios, including Netflix, are still fighting over issues of compensation and artificial intelligence.

Studios are facing pressure from investors, who have grown increasingly sceptical of the big losses posted by some of Netflix’s rivals in the streaming business, such as Disney.

From that perspective, Netflix is in a strong position.

It reported quarterly revenue up 7.8% year-on-year at $8.5bn, while profits hit $1.67bn.

The company has been trying to nudge customers onto the advertising-funded plan, which it sees as having big potential to drive profits. That is one reason for the price hike to its “basic” advert-free plan, which is no longer widely promoted on its website.

Paolo Pescatore, analyst at PP Foresight, said he thought customers should expect to see even higher prices in the years ahead as the company looks to protect its profits and reckons with costs from licensing and new initiatives.

The company recently revealed plans to start opening a select number of bricks-and-mortar destinations for shopping, dining and Netflix “experiences” something like a Netflix version of Disney world.

“Price rises are inevitable and we can expect this most likely on an annual basis; akin to traditional pay TV and other services,” he said.

Netflix shares jumped more than 10% in after-hours trade.