Netflix US price hike has investors cheering but the rest of the world on edge.
A price hike for Netflix in the US – its largest yet – may not bode well for the streaming giant’s international audience as it raises the likelihood of price hikes elsewhere, too.
Yesterday (15 January), Netflix raised prices for US subscribers by between 13pc and 18pc, immediately impacting new subscribers and existing subscribers over the next three months.
‘When we invest in an original show, we find we’re having a better payback in terms of people watching and appreciating Netflix and valuing their subscription. So that’s why we’re leaning in that way’
– TED SARANDOS
It is the biggest increase since Netflix launched its streaming service 12 years ago.
Wall Street welcomed the increase, with the company’s stock rising by close to 7pc to $355.50 after the streaming giant revealed that its most popular plan would increase from $11 to $13 a month. Analysts project Netflix will see around $1bn in additional top-line revenue in 2019 from the rate hikes, provided there is not a mass exodus of subscribers.
The price for the cheapest plan is going up to $9 per month. A premium plan offering ultra-HD will jump from $14 per month to $16.
Investors are clearly confident that subscribers will continue to pay for the company’s growing original content library. While subscriber growth slowed after a price increase in 2015, a similar increase in 2017 didn’t stop the company adding 24m subscribers that year.
What is happening here is that Netflix will have to incrementally increase what it charges punters as it ploughs more cash into original content.
The company is expected to spend $1bn on original content over the next 10 years and is confident in the gains it is making thanks to original movies and series including Bird Box, Black Mirror, Roma, Stranger Things, The Crown, Tidying Up with Marie Kondo, Making a Murderer and more.
The price hike will affect the US and countries in Latin America and the Caribbean where the company bills in US currency.
Will we all be paying more for streaming in 2019?
So, why is this happening? Well, Netflix is also working hard to manage debt – it burned through $3bn last year and borrowed $2bn in a bond offering in October – as well as stave off competition from rivals that include Amazon, Disney and Hulu. Tech giant Apple is also preparing to enter the original content space with a vengeance.
While Netflix has said the price hike in the US does not affect its global plans, it is likely that the competitive and cost pressures it faces could eventually wind their way to the rest of the world. After all, when the US sneezes, the rest of the world catches the cold.
Commenting at the time of its most recent earnings in October, Netflix’s chief content officer, Ted Sarandos, said: “Our own original shows tend to be more valuable than licensing someone else’s shows in later windows.
“So, when we invest in an original show, we find we’re having a better payback in terms of people watching and appreciating Netflix and valuing their subscription. So that’s why we’re leaning in that way.”
Netflix’s financial results are expected to land tomorrow (17 January) and it will be interesting to see if Netflix shows its hand in what it plans for its international audience outside the US.