Netflix Inc. (NFLX) is aggressively charging new users for better quality streaming. Reportedly, new subscribers signing up for 4K ultra high-definition (UHD) shows will have to pay $11.99 per month, much higher than the standard price of $8.99.
Netflix’s most expensive service will now allow new subscribers to access four shows simultaneously. Earlier, the company used to offer two Ultra HD programs for the standard price of $8.99.
Subscribers opting for this premium service also need to have an Internet speed of at least 25 megabits per second (mbps) downstream to watch the UHD content.
Netflix’s 4K UHD content portfolio is not as expansive as the standard HD. According to Variety, the company has only a handful of shows and movies, which includes all 62 episodes of Breaking Bad, NBC’s The Blacklist, House of Cards 2, Smurfs 2, Ghostbusters, Ghostbusters 2 and the four-part Moving Art nature documentary series.
Per Bloomberg, Sony’s newer film releases are also included in the list. Netflix expects this content portfolio to increase substantially with the release of new original series like its own Marco Polo in the near future.
However, 4K UHD content is more expensive to acquire than the traditional HD shows. Netflix has cited this higher cost as the primary reason behind the premium pricing.
Higher operating cost is a major concern for Netflix. The company continues to license top-grade content from different producers like CBS Corp (CBS), NBC and Dreamworks Animation in order to remain competitive and attract subscribers.
To ensure better streaming quality, Netflix pays annual fees to Comcast (CMCSK), Verizon (VZ) and AT&T. These agreements increase Netflix’s operating costs substantially. International expansion, original productions and recent move to movie distribution also increase costs, which negatively impacts profitability.
Netflix has $7.72 billion due for content streaming obligations, out of which $3.30 billion needs to be paid within the next 12 months. After that period, Netflix needs to pay $3.73 billion within the following three years
Nevertheless, we believe that Netflix’s superior content portfolio is a major attraction for subscribers. Despite the premium pricing, the higher resolution streaming quality will further boost subscriber base over the long run.
Currently, Netflix has a Zacks Rank #3 (Hold).
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