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The cost of streaming goes up every year, and last week it went up again. The most expensive plan will increase in price from $20 per month to $30 per month. It is the third price increase in a row.
One of the most expensive on-demand streaming options is the Disney bundle, which costs 14 dollars per month, but is slightly less expensive than the standard tier at 15 dollars per month. It gets even more expensive if you want 4K. The amount of money is not insignificant, considering people tend to have around four paid streaming subscriptions.
It is safe to assume that the price hikes will continue, especially for Netflix. The company is spending more on content as growth opportunities stall. To keep up, the company has to either increase the number of subscribers or ask existing customers for more money. Right now, the company knows it can.
They are doing well, but they are going to tighten up their finances as time goes by. The fundamental way in which they do that is with small incremental price changes over time. They feel that it won't affect their subscribership because they are well entrenched and their customers are loyal.
The money has to come from somewhere.
New shows and movies are one of the reasons why the company needs money. According to estimates from Ampere Analysis, the global spend on original programming is expected to exceed $230 billion in the next four years. According to Ampere, Disney and Comcast are the only two companies that invest in pricey sports rights.
streamers hope to not only hang onto their existing customers but also lure in new subscribers by dumping truckloads of money into original programming. Expanding its programming helps it be everything to everyone. Investing in an ever-growing portfolio of scripted, unscripted, animated, and live-action programming helps ensure that the service remains a monthly subscription.
The more that they can serve all the different aspects of different households, the better. This allows the company to claim that it is a must-have entertainment service. The strategy is working if the 200 million-plus paid subscribers are any indication.
There is another reason for the price increases. Even with hundreds of millions of active subscribers, the growth of its subscriber base has begun to slow. The company continues to add subscribers, but the number of additions has fallen in recent years. The company spends billions on programming every year. With major competitors like Disney Plus and HBO Max entering the market, they are only likely to keep growing so they can remain competitive.
This is likely to come up in the company's earnings call later today, as investors are worried about slowing subscriber and revenue growth. In addition to paying for the content it needs to continue scaling its business, it has to keep its investors happy as well.
If you use the service every day, you don't pay attention.
Reed Hastings has described shared accounts as something you have to learn to live with, and without kicking all of us off our exes or parents plans, it will be difficult for the company to counterbalance its debts.
The money has to come from somewhere. A company can only pay off its debt if it has hard cash.
Small price increases every year and a half or so won't affect subscriber turnover for a service that customers use often or one that is central to their cord-cutting portfolio.
Does the consumer think that the price is worth it? Michael Pachter, a managing director at Wedbush Securities, says that if the answer is yes, they can raise prices. If you use the service every day, you don't pay attention.
Historic trends for price hikes offered a clue that another was coming soon for US subscribers. During an earnings call last year, Greg Peters, the COO and chief product officer, said that the company can occasionally go back to its subscribers and ask them to pay a little bit more to keep that positive. The price increase was just as good as promised, but cracking the teens is still a significant milestone for the streamer.
Setting aside the decade or so lead thatNetflix has on its rivals for everything from viewing data to its catalog, pretty much every move it makes is driven by making its streaming service as addictive as possible, which costs money. Whether that is expanding its sports offerings, taking big swings with both critically adored and up-and-coming directors, or expanding characters and worlds with gaming, Netflix is burning through cash to try to keep you hooked on its service.
Now that they know they have to weight in the industry, they will continue to innovate. Even if it means going outside of the traditional volumes and types of content that they're used to delivering, it's proving to be viable for them.
It is synonymous with streaming and it has an unparalleled brand loyalty. Every couple of years, the price of the service will go up by a buck or two because it can. It is safe to assume that it will continue doing so.
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