Netflix Says Its Price Hike Will Clip Revenues For a Quarter
A quick first look at the Netflix Q2: Revenue of $788.6 million, earnings of $1.26 a share Wall Street was looking for $791.5 million and earnings of $1.11 per share. Analysts are unlikely to be happy with the company's guidance for the next quarter, though.
Context & Ripple Effects
Netflix enters this report at a high-water mark: by mid-June it had become America's biggest video service and topped Apple in a brand-loyalty ranking across 528 brands. Then it moved aggressively on price — first quietly matching its streaming tier with a $7.99 unlimited DVD-by-mail plan on July 8, then raising prices roughly 60 percent on combined DVD-and-streaming customers, blaming the old bundle's cost structure.
The Q2 print itself is a split verdict: earnings of $1.26 a share cleared Wall Street's $1.11 bar, but revenue of $788.6 million came in under the $791.5 million expected — and management guided down for the coming quarter because of the price change. Syndicated coverage shows the story travelling widely, with TechCrunch noting 75 percent of new customers now choose streaming-only and Business Insider flagging a coming Facebook integration outside the U.S.
First-order effects
- Netflix beats on EPS ($1.26 vs. $1.11 expected) but misses on revenue ($788.6 million vs. $791.5 million), and its guidance tells analysts the 60 percent price increase will suppress next quarter's revenues — an immediate hit to the growth narrative that drove the stock.
- Customers on the combined DVD-plus-streaming plan face the higher bill right away, while new signups are overwhelmingly bypassing the bundle: 75 percent are picking streaming-only plans.
Second-order effects
- With most new subscribers going streaming-only, Netflix's cost base and content spend tilt further toward streaming licensing while the DVD-by-mail business — propped up by the $7.99 unlimited plan introduced July 8 — risks becoming a shrinking legacy add-on rather than a growth engine.
- A soft quarter gives rival subscription video services a rare opening to pitch switching while prices are fresh in customers' minds, forcing Netflix to defend the loyalty crown it won in the June brand survey.
Third-order effects
- If churn stays muted despite the 60 percent increase, the episode stands as evidence that subscription video has real pricing power — an assumption other media companies will test against their own subscribers.
- The guidance miss marks the moment Netflix's investor story pivots from raw subscriber growth to managing the DVD-to-streaming transition, where quarterly optics depend more on mix than on headline additions.
The trend: Streaming video is shifting from land-grab growth to priced-for-profit maturity, and Netflix's willingness to absorb a revenue dip to reset its plans is the clearest data point yet.