Netflix CEO tells subscribers to brace for higher-priced plans in the future

Share prices slipped early in the day and then soared more than 10 per cent on after-hours trading as the stronger-than-expected second-quarterresults were announced. The company’s stock also split seven-for-one on Wednesday.

The Guardian reports that the company made some $838m from its streaming business in the US alone this month, with $307m coming from its international web video service. Its DVD rental service still brings in $130m.

Netflix topped 65m subscriptions worldwide this quarter, with 42m in the US alone. Nevertheless, the cost of the third-party content currently on the service remains 4.6 times its net revenue at $7.7bn.

Netflix may be less tolerant of widespread password sharing in the near future. The company has a one-stream, standard-definition package priced at $7.99 a month, but “we also want to motivate people to move up to the two-stream and the high-def and the ultra-high-def”, Hastings said, though he didn’t elaborate on what the incentives to switch plans would be.

Prices of current subscriptions won’t change this quarter, but Hastings said prices will increase over the next decade.

“We want to take it very slow,” Hastings said. “Over the next decade I think we’ll be able to add more content and have more value and then price that appropriately.”

Clad in a teal Bojack Horseman sweater, Hastings said on a webcast to investors that if it continues to be charged for traffic by ISPs, the process would “set up a very ugly industry structure” and ultimately lead to consumer blackouts during negotiations.

Hastings likened pay-to-play peering for heavy traffic drivers like Netflix to the frustrating battles that have cut off subscribers from channels like CBS and AMC for days or even months. Charter, in its bid to purchase Time Warner Cable, has promised free peering and received Netflix’s blessing as a result. The company didn’t care for Time Warner’s last suitor, Comcast, which proposed a merger that the FCC ultimately blocked.

Hastings said requiring payment for peering is the first shot in a pricing war that would eventually recall the network blackouts. “It starts off at very low numbers and constantly escalates through a series of price discovery battles that impact consumers with various shutoffs to see who can take the pain,” he said.

Hastings also gave details on the company’s entry into the new and notoriously difficult markets in the coming months, notably China and Japan, and said he hoped he could get Comcast to provide free peering to Netflix in the future.

Hulu, the executive said, had made strategic mistakes in its attempt to enter Japan four years ago. Hastings said Netflix would learn from them by playing a longer game. “It was ¥2,000, or about $20 a month, and it had no local content,” he said. “Our pricing will be more aggressive than theirs was, we’ll have local content and maybe some local originals.” Japan, he said, was not particularly open to new brands, and he expected slow growth but loyal viewership: “When the Japansese society embraces a brand it’s very long-term.”

China is a more difficult proposition, though the company has said it will launch there next year. “China continues to be its own entity in terms of its challenges and the characteristics of the market,” said chief financial officer David Wells. “We hope to be able to launch a service there next year.”

Hastings was coy. “We described it as a modest investment when we launch, and nothing has changed in terms of our use of the word ‘modest’ with reference to investment levels,” he said.