On Tuesday, Netflix announced that it would raise prices across all of its plans in the US. For most people, that means their $11 monthly rate will hop to $13 over the next few months. New customers will pay the higher price starting today. No one likes a price hike, especially given that Netflix had just bumped its most popular subscription’s cost in 2017. But this round’s timing seems especially inauspicious given the flood of streaming competition—from Apple, Disney, WarnerMedia, NBC, and more—that lies just ahead. Or maybe that’s the point.
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“On the surface, it does seem to be a bit of jeopardy to increase prices when the competitive services are coming,” says Tony Gunnarsson, a senior analyst at Ovum focused on the streaming media business. Take the Disney+ streaming service, due to arrive later this year. Not only will it yank all of the Marvel, Star Wars, and other Disney-owned content off of Netflix, but the Mouse House has also telegraphed that it’ll cost less. Widening that gap by two more dollars seems contrary to Netflix’s own interests, especially when you add in all the other heavy hitters in media gearing up for subscriptions of their own.
But you don’t have to look very far below the surface to see how Netflix’s move actually makes sense. Remember that the company has 58 million US subscribers; that’s about half of all TV households in the US. For many of them, it has become as indispensable as a cable subscription once was.
“The key thing with Netflix is that they have become a must-have, essential service,” says Gunnarsson. For consumers, it’s the first streaming service you subscribe to and then you add others after that.”
Recent history has borne that out. Over the dozen years that Netflix has offered streaming, it has raised prices four times, including Tuesday. The previous attempts resulted in negligible churn, the industry term for people quitting their accounts. Surely a ceiling exists somewhere for Netflix prices, but $13 seems an unlikely place for it. After all, that’s still a couple of bucks cheaper than HBO.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” the company said in a statement.
Your Netflix rate increase will subsidize lower subscription costs in developing markets.
And while Netflix this year will face down a more competitive landscape than it ever has, it’s important to maintain some perspective about just how big a threat all those new services pose, at least in the near term. Other than Amazon, no streaming service has come anywhere close to Netflix’s reach. It’s not just playing from a lead; almost no one else is even in the same stadium. Which is to say, the point at which a significant number of US consumers will be thinking hard about whether to put their dollars toward Netflix or Disney+—to whatever extent it’s one or the other—remains years away.
In the meantime? Netflix will continue funneling that subscription revenue into original content. Shooting Bird Box incurred "qualified expenditures" (which doesn't include huge swaths of budget like cast and director fees) in the ballpark of $20 million. Netflix spent a reported $90 million on 2017’s Bright , its first tentpole blockbuster. And recent estimates have pegged the company's overall 2018 original content budget at $13 billion. Investing heavily in its own shows and movies has undeniable benefits; Netflix doesn’t have to navigate international licensing thickets to show them around the world, and they’ll all remain on the service indefinitely. Most of all, its streaming catalog already dwarfs what Apple or even Disney and TimeWarner will be able to offer at launch, both in scale and variety. The more money Netflix takes in, the more it can provide something for everyone, attracting new subscribers, who add more revenue, which becomes more shows, and on and on.
That said, it’s unlikely that all of the price increase will go directly toward Bright 2 and its ilk. In the process of expanding its streaming empire, Netflix has run up $8.3 billion in long-term debt. Extracting an extra two dollars each month from 58 million subscribers won’t make that go away, but it helps.
More importantly, though, even in areas of the world where Netflix's footprint is smaller than in the US and Europe, the service remains extremely price-competitive. In Malaysia, for instance, it’s testing a mobile-only plan that clocks in at about $4 per month. The dominant streaming force in India—whose 1.3 billion citizens are increasingly online—is a company called Hotstar . Its most expensive plan costs $3 per month.
“They are underway with a huge international expansion plan. We’re talking about markets like India, Southeast Asia, Africa, where Netflix as it stands today is unlikely to be able to replicate the success they’ve had in the Americas and Europe,” says Gunnarsson. “It makes sense to slightly nudge up the subscription charge in mature markets to withstand lower prices that are a must in those developing markets.”
Your Netflix rate increase, in other words, will subsidize lower subscription costs in developing markets, where the company has some serious catching up to do.
How much further Netflix will go with its price bumps will likely depend on how quickly the competition ramps up. But if you’re already starting to feel the strain, and anxious about how the streaming wars will affect your wallet, take at least some comfort that not every option is getting more expensive. In fact, more and more of them are free.
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