Why Netflix keeps cranking up its prices

Every year the cost of streaming gets more and more expensive – and last week prices started to rise again. Netflix announced that all of its tiers would receive an immediate price hike for new subscribers, raising its most expensive subscription to $20 per month. It is the third price increase since 2019.

Bee $15.50 per monthNetflix’s standard tier is now slightly higher than HBO Max ($15 per month) and the Disney bundle (which includes ESPN Plus and Hulu for $14 per month), making it one of the most expensive on-demand streaming options among leading services. If you want 4K, it gets even more expensive. That’s not an insignificant amount, given that people tend to have about four paid streaming subscriptions, according to recent data from Deloitte.

While the price hikes are stinging for consumers, it’s safe to expect them to continue, especially for Netflix. Growth opportunities have stalled and the company’s spending on content continues to grow. To keep pace, Netflix must either increase the number of subscribers that pay for its service or charge its existing customers for more money. And right now, Netflix knows it can.

“They are doing pretty well, but they will continue to tighten their finances over time,” Paul Erickson, research director for Parks Associates, told Custom Hour. “This is the fundamental way they do it – small incremental price changes over time. Because they feel they are so well entrenched and loyal to their customers, they feel it won’t materially affect their subscription .”

“The money has to come from somewhere.”

One of the main reasons Netflix needs money is to pay for new shows and movies. Streaming services are spending an outrageous share of change on original programming, with global spending expected to exceed $230 billion by 2022. according to estimates from the firm Ampere Analysis. Ampere positions Netflix as the third largest investor in video content, surpassed only by Disney and Comcast, both of which invest in expensive sports rights.

By dumping truckloads of money into original programming, streamers hope not only to retain their existing customers, but also to lure in new subscribers. For Netflix, expanding programming across genres and categories ensures that it’s everything for everyone. Investing in an ever-growing portfolio of scripted, unscripted, animated, and live-action programs helps ensure Netflix maintains a monthly subscription.

“The more they can serve all the different aspects of different households — whether that’s language specificity, whether it’s market and lifestyle specificity — the better,” Erickson says. This allows Netflix to justify positioning itself as an essential, must-have entertainment service. And if the 200+ million paid subscribers are any indication, the strategy is working.

This is likely to come out later in the day in the company’s earnings call, which worries investors delaying subscriber and revenue growth† In addition to paying for the content it needs to continue scaling its business, Netflix also needs to keep its antsy investors happy.

“If you use Netflix every day, you don’t pay attention.”

Without taking the highly reviled step of kicking us all off our exes or our parents’ schemes — Netflix boss Reed Hastings has described shared accounts as “something you have to learn to live with” — Netflix needs to find a way to counterbalance its weight. offer debt.

“The money has to come from somewhere. A company can only pay off its debt and become really profitable with hard cash,” says Erickson.

At the same time, small incremental price increases over about a year and a half are unlikely to impact subscriber revenue for a service that customers often use or a service that is central to their cable-cutting portfolio.

“Do consumers feel that Netflix is ​​good value for money? If the answer is yes, they can raise prices overwhelmingly and virtually no one stops,” Michael Pachter, director at Wedbush Securities, told Custom Hour. “When you use Netflix every day, you kind of don’t pay attention.”

Historical trends for price increases indicated that another price increase was imminent for US subscribers. In addition, Netflix COO and Chief Product Officer Greg Peters said during a call for profit last year that by delivering what Netflix feels is “great entertainment value” through content and user experience, the company can occasionally go back to its subscribers and “ask them to pay a little more to keep that positive cycle going.” ” In other words, a price hike was just as good as promised by Netflix — but the cracking of the teens is still a pretty significant milestone for the streamer.

Aside from the decade or so that Netflix has on its rivals for everything from viewing data to its catalog, virtually every move Netflix makes is driven by making its streaming service as addictive as possible, which again costs money. Whether that’s expanding his sports offermaking big swings with both critically adored and emerging directorsor expanding characters and worlds with gaming, Netflix burns cash trying to keep you hooked on its service.

“They continue to innovate because now that they know they have to weigh in the industry, weight for creating original content — it’s not just a fluke,” says Erickson. “It appears to be viable for them to continue to diversify what they do in terms of content, even if it means going beyond the traditional volumes and types of content they’re used to delivering.”

Netflix enjoys arguably unparalleled brand loyalty in the streaming space – it’s synonymous with streaming. At the end of the day, Netflix raises its price by a few dollars every few years, just because it can. It’s safe to assume it will continue to do so.

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