SAN FRANCISCO (AP) — Netflix is testing the financial limits of its streaming video service as the rising cost of producing original programming pushes up subscription prices.
The latest reminder came Monday with the company’s third-quarter earnings report, which revealed that Netflix added 370,000 U.S. subscribers. That marks its second consecutive quarter of slowing U.S. growth since lifting a two-year rate freeze and increasing prices by as much as 20 percent for more than 20 million existing subscribers.
While the latest quarterly subscriber gain exceeded management’s modest projections, it fell far below the 880,000 U.S. customers that Netflix picked up at the same time last year. The deceleration occurred even though the latest period included the July debut of “Stranger Things,” which turned into one of the summer’s surprise hits.
Netflix is now faring far better overseas as it tries to diversify its video library to suit the tastes of 189 other countries. The company added 3.2 million international subscribers in the third quarter, surpassing the 2.7 million it gained at the same time last year when it was operating in about 130 fewer countries.
The drop-off in U.S. subscriber gains underscores the delicate balancing act the company is trying to pull off as it tries to retain and attract customers while also financing an ambitious expansion overseas amid fierce competition from Amazon and HBO.
It’s an expensive challenge, which is why Netflix raised the price for its most popular U.S. plan from $8 to $10 per month. And the pressure to continue increasing rates every few years seems likely to continue.
On average, Netflix said, it is collecting 10 percent more for its subscribers worldwide than a year ago. About 25 percent of the U.S. subscribers still covered by the rate freeze imposed in 2014 will have their prices raised by year’s end.
“With more revenue, we can reinvest to further improve Netflix to attract new members from around the world, while continuing to delight our existing customers,” Netflix CEO Reed Hastings wrote reviewing the third-quarter results.
After spending $5 billion on original programing and licensing rights to other shows this year, Netflix has earmarked another $6 billion for next year. Only Walt Disney Co. and NBC are spending more on programming, based on an analysis of 2015 data, according to the research firm IHS Markit. Netflix expects to offer 1,000 hours of original shows and movies next year, up from 600 hours this year.
But the price increases that help finance new shows threaten to become counter-productive if they drive away too many of the existing 47.5 million U.S. subscribers or discourage potential new customers from signing up.
Netflix does not disclose how many of its subscribers cancel each quarter, but Wedbush Securities analyst Michael Pachter estimates that about 1 million U.S. households opened new accounts from July through September. That means about 600,000 subscribers abandoned the service during the third quarter, if Pachter’s calculations are accurate.
