Sunday December 04, 2022

Why Netflix keeps cranking up its prices

Each year streaming becomes more expensive. Prices started rising last week. Netflix announced that all tiers will see an immediate price increase for new subscribers. This will raise its most expensive plan to $20 per monthly. This is the third price hike since 2019. Netflix’s standard plan now costs $15.50 per monthly, slightly more than HBO Max ($15 per per month) or the Disney Bundle ($14 per per month), making it the most expensive streaming service. It gets even more expensive if you want 4K. This is a significant amount of money considering that people have four streaming subscriptions paid to them, according to Deloitte data.
Although price increases are painful for consumers, it is safe to assume they will continue — especially for Netflix. The company’s growth opportunities are now stalled and its spending on content is growing. Netflix must either increase its subscribers or ask its customers for more money to keep up. Netflix is aware of this ability right now.
Paul Erickson, Parks Associates senior analyst, says that they are doing well but will continue to tighten their finances over time. “This is their fundamental method of doing that — small incremental price increases over time. They feel it won’t materially affect their subscribership because they are so established and loyal to their customers.
Netflix is dependent on money to pay for new movies and shows. According to Ampere Analysis, streaming services spend a staggering amount of money on original programming. The global spend is expected to surpass $230 billion by 2022. Ampere places Netflix as the third largest investor in video content. Comcast and Disney are the only two that are more prominent. Both of these companies invest in expensive sports rights.
Streamers are investing truckloads of money into original programming to retain their customers and attract new subscribers. Netflix’s ability to offer everything to everyone is possible by expanding its programming beyond the traditional genres and categories. Netflix is a monthly subscription that continues to offer a growing selection of live-action, scripted, animated, and unscripted programming.
Erickson states, “The more they can serve all aspects of different households — regardless of language specificity, market and lifestyle specificity — then the better.” This allows Netflix to be positioned as a core entertainment service. The strategy seems to be working, as can be seen by the 200 million plus paid subscribers.
Netflix has also turned to price increases to increase its profits. Netflix’s subscriber growth has slowed despite the fact that it has hundreds of millions of subscribers. While the company continues to add subscribers in recent years, the number of quarterly additions has dropped in recent years (in certain cases, falling below forecasted numbers). Netflix’s content spending continues to rise, with the company spending billions every year on programming. With major competitors like Disney Plus, HBO Max, and HBO Max joining the market, it’s only likely that they will continue growing so Netflix can stay competitive.
Investors are concerned about slowing revenue and subscriber growth, so this topic is likely to be discussed in the company’s earnings conference. Netflix must pay for the content it needs to grow its business. But, Netflix also needs to keep its investors happy.
Netflix boss Reed Hastings described shared accounts as “something that you have to learn how to live with”, but he didn’t take the controversial step of simply kick everyone off their parents’ plans.
“The money must come from somewhere. Erickson states that a company can only pay off its debts and achieve true profitability with hard money.
However, customers who use the service often or are central to their cord-cutting strategy will not be affected by small price increases every year and half.
“Does the customer feel that Netflix is a good deal for the price?” If the answer to that question is yes, then they can increase prices and pretty much nobody quits,” Michael Pachter (a managing director at Wedbush Securities) tells The Verge. “If you watch Netflix every day, you don’t pay much attention.”
The US subscriber’s history of price increases gave a hint that another was on the horizon. During an earnings call last year, Greg Peters, chief product officer and COO of Netflix, stated that the company can sometimes go back to its customers and “ask” them to pay a little more to maintain that positive cycle. Netflix’s price hike was as good as they promised, but it still managed to crack the teens.
Netflix is a decade ahead of its competitors in everything, including viewing data and catalog. However, almost every move it makes is driven by making its streaming service more addictive. This, again, comes at a cost. Netflix is spending a lot of money to keep you hooked, whether that’s expanding its sports options, or taking big swings alongside both critically acclaimed and up-and coming directors.
Erickson states, “They’re going continue to innovate because they now know they’ve got weight in the industry and weight for original content creator — it’s no fluke.” “It’s feasible for them to continue diversifying what they do content-wise, even though it means going beyond the traditional volumes or types of content they’re used too.”
Netflix enjoys a brand loyalty that is unrivaled in the streaming space. It’s synonymous with streaming. Netflix raises its price by a dollar or two every couple years just because it can. It is safe to assume that it will continue doing this.

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