Netflix's spending on content is bringing in more subscribers

Netflix has had an astonishing year. Its shares surpassed $400, up 110% since January, and it was nominated for 112 Emmy Awards, more than any other television network, including HBO, which had held that distinction for 17 years.

Netflix’s success is the main reason for the costly takeover battle between Comcast and Disney for 21st Century Fox assets. The only sign investors are getting nervous that the good times can’t last is a 4% selloff in the company’s shares on Friday, ahead of next week’s earnings.

On Monday, the most important data points will be the company’s subscriber numbers for the quarter, and its outlook for the coming quarter. Netflix forecast 1.2 million new domestic subscribers and 5 million international ones. As long as it hits those numbers, and it is hard to believe it won’t, investors will be pleased.

US consumers watch Netflix more than any other platform, including basic cable and broadcast, according to a recent survey by Cowen & Co. The company released 452 hours of original programming in the second quarter—an increase of 51% from the same time last year.

Consumers are so happy that even higher pricing hasn’t stopped them from binging. Netflix has hiked the price of its standard streaming service in the U.S. by 39% in the past four years. The domestic subscriber base still surged 62% in that time.

It may be testing the waters for another hike. The company is reportedly rolling out a new plan in some European markets that would offer 4K resolution streaming to multiple devices. The cost of those plans, at least in trial mode, appears to be the equivalent of about $20 a month—more than 40% above the price of the company’s current premium offering.

Higher subscription costs mean Netflix will be able to spend more on content. This won’t just lockdown viewers, it could drive other players out of the game by pushing up their costs and biting into their revenue. As one Hollywood executive grudgingly acknowledges, “It’s a good strategy.”

Source: The Wall Street Journal

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