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US Online Streaming Giant Netflix : Illustration

Source: Pascal Le Segretain / Getty

Netflix has decided to raise the price of its Internet video service by $1 for new customers in the U.S., Canada and some Latin America countries to help cover its escalating costs for original programming.  Netflix Inc.’s programming costs are expected to rise from $3 billion this year to $5 billion next year.

According to the research firm Ampere Analysis, Netflix could possibly pay $6 billion annually for its line-up by 2018.  The new price of $10 per month for Netflix’s standard plan marks the second time in 17 months that Los Gatos, California, company has boosted its U.S. rates by $1.

The trend is a result of the financial pressure that Netflix is facing as it competes against Amazon.com, HBO and other services for the rights to TV series and movies that will expand its audience.Netflix’s 42 million existing U.S. subscribers aren’t being affected by the price bump.

The abrupt price increase back in 2011 cost Netflix more than 800,000 subscribers and caused its stock to lose 80 percent of its value in a tumultuous 13-month period.  So now subscribers who have been with Netflix since May 2014 will continue to pay $8 per month under a two-year rate freeze adopted when the company last raised its U.S. prices by $1.

On the other hand, customers who signed up since the last price increase will pay $9 per month until October 2016.  Netflix’s audience continued to expand after last year’s price increase and investors appear confident that will reoccur again with the latest uptick in rates since Netflix’s stock surged 6.8 percent, to $114.93 Thursday.

The strategy has paid off for Netflix too as its U.S. customer base has swelled by about 70 percent from 25 million subscribers since the 2013 debut of “House of Cards,” the service’s first major splash in original programming. Netflix now features dozens of exclusive programs.

However some analysts view Netflix’s biggest competition as HBO, which sells an Internet-only version of its channel for $15 per month.  According to Per Sjofors, CEO of consulting firm Atenga HBO’s price may give Netflix leeway to raise its prices even further, even as much as $13 per month for its standard Internet plan without hurting its growth.

Netflix’s standard plan allows subscribers to stream video on as many as two different devices simultaneously and watch programs in high definition. A basic plan, available to new customers for $8 per month limits watching to just one screen, with no high-definition option.

 

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