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Netflix price hike in the queue after profit surges

Netflix reported first-quarter profit that beat analysts' expectations. The online video service also said it may raise prices by as much as $2 a month for new subscribers.

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Joan E. Solsman
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Netflix's profit surged in the first quarter, with the online video service saying it had contained costs and signed up more international subscribers than expected. It also said new US subscribers may face a monthly bill increase of $1 to $2 later this quarter.

"In the US we have greatly improved our content selection since we introduced our streaming plan in 2010 at $7.99 per month. Our current view is to do a one or two dollar increase, depending on the country, later this quarter for new members only. Existing members would stay at current pricing (e.g. $7.99 in the US) for a generous time period," the company wrote in a letter to shareholders.

It would be Netflix's first price increase in the US since 2011, when it sparked outrage among its members by essentially hiking prices 60%. It also follows Amazon's move earlier this year increasing the price of its Prime service -- which includes Netflix rival Prime Instant Video -- to $99 from $79 annually.

Netflix, which has its sights on becoming the world's foremost online television network, relies on the US for most of its business but has set plans in motion to significantly expand abroad this year and increase its original programming. The strategy not only reflects the company's hunt for sharp growth but also its ambition to become a global TV must-have as technology morphs the definition of what is and isn't a television channel globally.

Shares were up 5.1 percent to $366.24 after hours Monday as its outlook for profit in the current quarter also beat Wall Street views. The stock has nearly doubled in value in the last year, but the price has dribbled lower in the last month and a half through the close, negative for 2014.

In the letter to shareholders, Chief Executive Reed Hastings strengthened his rhetoric conflating his desire for no-fee deals improving Netflix's access to ISP networks, saying Netflix opposed the merger of Comcast and Time Warner Cable because it threatens its business interests.

The letter highlighted the second season of "House of Cards" as a success. Original series are a key component of Netflix's plan to grow into a dominant TV network for the digital age, imparting the company with exclusive content that comes at more controllable costs. So far, shows like "House of Cards" -- the second season of which debuted during the latest quarter -- and "Orange Is the New Black" have been counted as hits, though the company doesn't disclose hard data on how popular they are. The company said the debut of "House of Cards" in February "attracted a huge audience that would make any cable or broadcast network happy," and it noted that promotion of the second season resulted in more watching of the first.

The company earlier this year teased its plans for an important expansion in Europe. Tuesday, Netflix said that its current international operations are on track to become profitable this year, but because of the expansion into Europe in the second half, the segment as a whole will continue to report a loss this year.

The company also noted that Netflix expects Amazon's new set-top box Fire TV to return Netflix results in voice search later this year. Amazon's Prime Instant Video service competes directly with Netflix, and the online retailer's first media-streaming box included a unique technology that would retrieve viewing options simply by saying an actor's name or the title of a video. At launch, the device only supported Amazon content in the search, but that has since expanded to other services -- but not Netflix yet, which is by far the most used online subscription service.

In its results, Netflix added 2.25 million new domestic streaming customers in the first quarter, for a total of 35.7 million, right on the nose of its October guidance. Its international subscriber base expanded by 1.75 million members to 12.7 million, more than the 1.6 million new users expected.

Looking ahead, it expects subscriber growth to be more moderate in the current period. It's projected to add 520,000 domestic members and 940,000 international ones for the second quarter. Hastings has said he envisions the company reaching 60 million to 90 million US customers eventually.

Netflix also predicted $1.12 per share in earnings in the current quarter. On average, Wall Street analysts who track Netflix expected $1.

Overall, Netflix reported a profit of $53.1 million, or 86 cents a share, compared with $2.7 million, or 5 cents a share, a year earlier. Revenue increased 24 percent to $1.27 billion. Analysts on average expected per-share profit of 83 cents, above Netflix's guidance for 78 cents, and $1.27 billion in revenue.

Netflix will hold a live video discussion of the results, including comments from Hastings and other Netflix executives. It will start streaming on Netflix's investor relations' Web site at 2 p.m. PT.