Video streaming giant Netflix has once again increased prices for its subscribers in the US. With subscription fatigue at an all-time high, will Netflix subscribers absorb the price hike again or will we see a subscription backlash?
SVOD giant Netflix has just increased its subscription prices by up to 18% making it the largest price hike to date, according to reports
. The standard definition service will cost $8.99 instead of the current $7.99 per month; its most popular HD streaming plan will move from $10.99 to $12.99 per month and its premium plan will cost $15.99, up $2 from the earlier $13.99. Netflix had last raised its prices in the US in October 2017
The price increase will immediately be rolled out for new subscribers, while existing subscribers will see a gradual rollout over the next three months. The changes will also be applicable to customers in Latin America and the Caribbean that are billed in USD, although it won’t apply to Brazil and Mexico. This move is expected to impact 58 million subscribers in the US alone.
Wall Street welcomes the move
If anybody is happy with this move, it’s Wall Street, where investors gave this move a thumbs up and the Netflix stock price climbed 6.5% following the announcement. Investors had become extremely jittery with Netflix’s continued expenditure by tapping the debt market, the most recent foray being $2 billion raised last October
. As Netflix looks to pump up more original content, its bills are only going to rack up higher, so analysts expect the new move to assuage investor concerns for some time.
The streaming business is about to get more crowded
As we predicted in our subscription business trends for 2019
, this will be an extremely important year for the video streaming industry. Giants like Disney
are coming into the market, and television network NBC has also just announced that it will launch its own SVOD service next year
. As the subscription streaming market gets more saturated, consumers will most likely gravitate towards the service with the best content.
From that perspective, it does seem that Netflix’s move is well timed. Even if subscribers are unhappy with Netflix’s price hike, it is unlikely that they will switch platforms as Netflix’s new slate of original shows is doing very well, underlined by its performance at the leading award shows
. By the time Apple and Disney come into the market, Netflix will have a chance to retain its loyal core of subscribers by offering them more quality content fuelled by its increasing budgets for programming.
What about the subscribers?
Of course, subscribers are on the receiving end of the aggressive price hike by Netflix. With increasing numbers of businesses going behind paywalls, subscription dollars are now becoming an increasingly important component of the consumer entertainment budget. Netflix, though, does seem to command the pricing power in the US to be able to make such a move. But, can services like Netflix continue to fuel their growth by increasing their subscription prices every year or so?
Even though the price rise may alienate some subscribers in the US, analysts
predict that the company will be able to offset a small amount of consumer backlash with the increase in revenue through its higher fees. Without a massive exodus, projections are that Netflix will add $1 billion to its top line revenue in 2019 from these price hikes. But there are chances that the increase in prices may slow down subscriber growth in the US and even lead to churn, which was observed last year
. However, this might be mitigated with its continued international growth.
Netflix Triumvirate: Content + Technology + User Experience
Netflix’s continued investment in original content is paying off big time, and this is evident from its recent successes with Bird Box
and its first interactive show for adults Black Mirror: Bandersnatch
. Netflix has also tasted success with its local language content built for different markets such as Sacred Games
in India and Narcos
in Latin America. Content is king and Netflix is undeniably good at it!
Another big part of the Netflix appeal, and something which makes it stand out from its peers, is its use of superior technology in an almost understated fashion. As we have always said, Netflix is a technology company as much as it is a media company, but not many people view Netflix through that lens. Yet, every year, Netflix is hard at work on the nuts and bolts of its technology to ensure that its subscribers have an unparalleled streaming experience, be it offline
or even in the skies
. It’s subscription billing
experience is almost seamless, making it one of the leading subscription businesses of all time.
In fact, Bloomberg says simplicity is Netflix’s secret weapon
, and we couldn’t agree more. Even as deep-pocketed competitors like Apple and Disney come in to the market, it will be a tough task for them to displace Netflix from pole position. Firstly, SVOD will be only one among the many services they offer so it may not get the same business focus. And secondly, the variety of streaming options offered by competitors like AT&T is complex. Netflix, on the other hand, has kept simple choices for its subscribers making it extremely easy to sign-up and stay subscribed to the service.
So, even though, Netflix might be pricier than before, subscribers might just be willing to make an exception once again!