Netflix is rolling out its biggest price increase to date — including hiking the standard HD plan from $10.99 to $12.99 per month — for all subscribers in the U.S. and parts of Latin America. The obvious risk: Some customers will see the higher prices as a reason to bail on Netflix, while there’s also the chance the increase will put a damper on new subscriber acquisition. Is the subscription VOD leader pushing its luck? Netflix, which has reams of data at its disposal to make such business decisions, appears confident that the risk of any consumer backlash is outweighed by the substantial lift in revenue it’s expecting with the fee increases. Analysts project Netflix will see around $1 billion in additional top-line revenue in 2019 from the rate hikes, assuming there’s not a mass exodus of subscribers. And investors are bullish on Netflix’s move to flex its pricing biceps: The stock rose 6.5% on Tuesday, to close at a three-month high of $354.64 per share. Sure, nobody is really happy about paying more for what’s ostensibly the same product. But analysts noted that even at $12.99 per month, Netflix’s standard plan represents a great entertainment value, especially compared with traditional pay-TV bundles. And its most popular plan is still two bucks less than HBO Now ($15 per month). “We don’t believe that [the price increases] will slow subscriber growth, as the new price points remain competitive relative to Netflix’s volume of original and licensed content,” said Neil Begley, SVP at credit rating firm Moody’s. With Netflix’s U.S. subscriber base at around 60 million, an average monthly increase of $1.50 per sub would bring in $90 million more per month — or $1.08 billion per year in the U.S. alone, per Begley’s assumptions. And to the extent that Netflix raises prices in international markets, that top-line number could more than double, he added. Begley believes Netflix will reach 200 million total paying subscribers in 2021 and will achieve break-even free cash flow by 2023. It could be Netflix execs feel the time is right to throw the switch given momentum behind its original content: Alfonso Cuarón’s “Roma” picked up Golden Globes wins and has Oscars buzz, and then there was Netflix’s claim that 45 million member accounts watched at least 70% of Sandra Bullock-starrer “Bird Box” in the first seven days, bolstered by Nielsen data. Netflix also banked a company-record 23 trophies at the 2018 Emmy Awards. But at least one Wall Street analyst is warning that the Netflix price hike will weigh on U.S. subscriber growth. That’s Wedbush Securities’ Michael Pachter, well known for his bearish calls on Netflix. Currently, the analyst has an “underperform” rating on Netflix’s stock, with a 12-month price target of $150 per share (less than half the price it’s currently trading at). In Pachter’s analysis, Netflix has “fully penetrated” households with above-median income, suggesting that future domestic growth would have to come from lower-income households (i.e. more price-sensitive consumers). “[T]he latest price increase may slow domestic subscriber growth dramatically this year,” the analyst wrote in a note Tuesday. It’s not an unreasonable point. Netflix’s growth among low-income Americans flatlined in 2018 while Hulu and YouTube paid streaming services continued to add new users, according to data from Earnin, a service that targets lower-income consumers by providing cash advances on their paychecks without interest or fees. But other research has backed up Netflix’s relative pricing power. In a report last November, Piper Jaffray analysts postulated that Netflix was in a solid position to raise streaming prices on a regular basis. That’s based on the firm’s survey of about 1,100 U.S. Netflix users that found 71% said they felt content on the service has improved. “We believe, as long as the vast majority of subscribers perceive that the service is improving, Netflix will be positioned to periodically increase price,” the analyst team led by Michael Olson wrote in a note. Actually, Netflix’s price increases more likely will affect subscription rates of other pay-streaming services, according to Mike Bloxham, SVP of global media and entertainment at consulting firm Magid. Netflix subscribers are less likely to cancel their service than customers of any other streaming platform, according to Magid’s research. In addition, the firm has found that consumers are willing to spend a total of around $38 per month for all their streaming services — which could mean Netflix’s price increases will prompt consumers to end their subscriptions to other services. “Due to [Netflix’s] strong market position, although this won’t necessarily be a popular move, the number of subscribers that will actually churn out of the service as a result will be minimal,” Bloxham predicted. The Netflix price increases come as Disney, AT&T’s WarnerMedia and Comcast’s NBCUniversal are each poised to launch streaming services of various flavors over the next year. Netflix’s fee hikes indicate that the company has “no interest in a price war for subscribers,” Craig Moffett and Michael Nathanson, principal analysts at MoffettNathanson, wrote in a blog post Tuesday. “Theirs is, instead, a spending war against competitors — even Amazon — who are not willing to play that game.” Compared with traditional media companies, Netflix still has carte blanche from investors to keep up its aggressive pace of content investment. “Netflix seems to be betting that the game isn’t (just) to open an insurmountable gap between themselves and their would-be competitors in terms of the size of their subscriber bases, but instead in the sheer tonnage of what they produce in their studios in order to feed the beast,” Moffett and Nathanson wrote.<doc-sep>Another round of Netflix price hikes is upon us. According to a report from The Wall Street Journal, Netflix will increase the prices of all of its subscription plans, effective immediately, for all new customers. Existing customers will see their rates increase over the next three months. Netflix's most popular plan, which lets users stream HD content on two screens simultaneously, will now cost $13 per month. That's an 18-percent increase from its previous $11 monthly price. Netflix's premium plan, which includes HD and UHD streaming on up to four screens simultaneously, will now cost $16, up from $14 monthly. The most affordable Netflix option, the "basic" plan, increases by $1, from $8 per month to $9. Netflix last increased its prices at the end of 2017, but only its standard and premium plans were affected. This time around, all three plans will cost more, resulting in a price hike that affects all US Netflix users. According to the report, the rate increase will allow Netflix "more flexibility to continue its aggressive spending on content." Advertisement "We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members," a Netflix spokesperson told The Wall Street Journal. While all Netflix users will spend just a few dollars more per month, that may be enough to prompt some to cancel their subscriptions. That's always a threat with a price hike, but Netflix is likely hoping that the promise of more (and better) original content will keep customers around. In recent years, Netflix has spent billions each year to produce original content and acquire the rights for existing content. Clearly, Netflix sees its original content—shows like Stranger Things, Orange is the New Black, and The Crown as well as movies like Bird Box—as the lifeblood of the service, and it wants to continue to invest heavily in it. Doing so will help it compete better with existing rivals like Amazon Prime Video and Hulu. There's also the threat of newcomers—Apple, AT&T, and Disney are all slated to introduce their own TV streaming services this year. Disney is a unique case because the company will remove most of its content from Netflix so it can live on its own streaming service instead.<doc-sep>Netflix is raising prices in the US more—and more frequently—than before. The streaming-video service raised the price for new signups today (Jan. 15) by 13% to 18%, the largest increase among its streaming plans in the US, where it has more than 58 million subscribers. The hikes come as the company invests more in high-end original series and movies, as well as marketing and technology. Netflix has hiked its prices in the US only a handful of times since introducing its standalone streaming plan in November 2010. Recently, it began raising rates more regularly. The last price hike was announced in October 2017, roughly 15 months ago. Changes in the price of Netflix’s standalone streaming plan in the US Date Basic Standard Premium January 2019 8.99 12.99 15.99 October 2017 10.99 13.99 October 2015 9.99 May 2014 7.99 (introduced) 8.99 April 2013 11.99 (introduced) November 2010 7.99 (introduced) Source: Company announcements and news reports The price of a standard plan in the US, which launched at $8 per month in 2010, has gone up more than 60% since. Unlike previous price hikes, which only affected some plans, the new hike will sweep across all of Netflix’s streaming offerings in the US. The price of Netflix’s basic plan, which supports standard formats and viewing on one screen at a time, is going up by $1 to $9 per month. The monthly cost of the standard plan, which supports high definition and viewing on two screens at a time, is going up by $2 to $13. And the premium plan, which allows for streaming on up to four devices at time, will cost $16 per month, $2 more. People who sign up for Netflix will see the new prices starting today in the US. The price hikes will roll out to existing US customers in the next few months. Current subscribers will be notified via email and in the Netflix app 30 days before the price raises hit their accounts. Around 40 countries in the Caribbean and Latin America where Netflix bills in US dollars will also be affected, including Uruguay, Barbados, and Belize. Key Latin American markets like Mexico and Brazil are billed in local currencies and therefore won’t see prices go up. The rate hikes come as Netflix invests billions each year in original content like the upcoming season of Stranger Things and movies like Martin Scorcese’s The Irishman; talent like TV creators Shonda Rhimes and Ryan Murphy; and new technology, like the choose-your-own-adventure format underpinning Black Mirror‘s “Bandersnatch.” Last year, the company spent $10 billion on content and marketing, and started producing more original programming itself rather than licensing the shows and moves from other studios. Self-producing content generally requires more investment upfront than licensing does. “We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” the company said in a statement to Quartz. Shares of Netflix were trading up from yesterday’s close around 6% at the time of this writing, at $351.70. News of the price hikes—first reported by the Associated Press—came two days before Netflix was scheduled to report earnings for the fourth quarter of 2018. However, Netflix is also raising prices at a time of increasing competition for viewers in the US. Streaming rivals like Amazon Prime Video and Hulu are also investing more in content and technology to catch up to Netflix, and media giants like Disney and WarnerMedia are preparing to launch streaming services of their own this year. Some people on social media expressed frustration with the raising rates today. Netflix’s streaming subscriber base has swelled to more than 58 million members in the US as of September 2018. But growth has started to taper off now that so many people in the US already have Netflix. International subscribers have become the company’s fastest growing group and made up about 58% of Netflix’s member base, after eclipsing the US in 2017.<doc-sep>Netflix is already facing tough competition from other streaming services such as Amazon, Hulu and HBO. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.) The streaming service landscape is about to become even more crowded with the entry of Disney and a Warner Media service projected to be not far behind. In its quest for dominance in both streaming and production, Netflix has had to borrow billions to finance its initiatives. It had already racked up $12 billion in debt when it announced it would be borrowing an additional $2 billion in October.<doc-sep>
Netflix is flexing its pricing-power muscle to kick off 2019 — hiking fees for all streaming-video plans for customers in the U.S. Netflix’s most popular plan, the Standard tier that offers two HD streams, is increasing 18%, from $10.99 to $12.99 per month. The Premium plan, which provides up to four Ultra HD streams, is increasing from $13.99 to $15.99 per month (up 14.3%). In addition, the company for the first time is hiking its Basic plan, which offers a single non-HD stream, from $7.99 to $8.99 per month (+12.5%). The new prices, which are the biggest fee hikes in Netflix’s history, will apply to all new Netflix subscribers in the U.S. immediately. Existing subscribers will be moved to the new pricing plans “over the next few months,” according to the company. Netflix’s price increases also will extend to about 40 countries in Latin America where it bills in U.S. dollars, including Uruguay, Barbados, and Belize. However, the rate hikes will not take effect (for now) in the region’s biggest markets, Mexico and Brazil. “We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” a company spokeswoman said in a statement. Netflix shares rose up as much as 6.8% in morning trading Tuesday on news of the price increases, with investors bullish on the evidence of its growing market clout. The company is looking to boost top-line revenue to offset its ballooning content costs, which were projected to hit $13 billion on a gross basis in 2018. To fund its content-spending binge, Netflix has raised billions in new debt: It reported $8.34 billion in long-term debt as of Sept. 30, up from $6.50 billion at the end of 2017. It’s also continuing to burn cash, and most recently projected negative cash flow of more than $3 billion for 2018 (versus negative free cash flow of $2 billion a year prior). Netflix last raised rates in the fourth quarter of 2017 — two years after its previous hike — and faced minimal cancellations and no slowdown in net subscriber additions. It remains to be seen how the new price increases affect subscriber growth heading into 2019. Netflix is scheduled to report Q4 2018 results on Thursday, Jan. 17. According to Netflix, existing members will be notified by email and within the Netflix app 30 days before the new prices are applied to their accounts. The exact timing will depend on a specific member’s billing cycle. Netflix had 58.4 million U.S. customers as of the end the third quarter of 2018, with a worldwide total of 137.1 million streaming members. Wall Street analysts have believed Netflix has demonstrable leeway to safely raise fees without the risk of significant backlash. Greg Peters, the company’s chief product officer, said on Netflix’s quarterly investor interview last October that “we earn the right to increase price a bit” if the company keeps delivering on customer expectations. “[W]e earn the right to increase price a bit and then we take that new revenue, invested back into the model and that sort of continuous positive cycle we get to keep going, and we foresee that that will keep going for many years in the future,” Peters said. The boost in revenue from the price increases could help “ease concerns” for investors about Netflix’s growing free-cash-flow deficit, CFRA Research analyst Tuna Amobi wrote in a research note reiterating a “buy” rating on the stock. “We anticipate a relatively seamless implementation of the latest price hike, given [Netflix’s] significantly expanded content offerings relative to its competitors’ pricing,” he wrote. At $12.99 per month, Netflix’s Standard plan will be more than Hulu’s ad-free option (currently $11.99) and Showtime’s streaming service ($10.99) but still less than HBO Now ($14.99). More competition is looming: Later this year, Disney plans to bow the “Disney+” service and WarnerMedia is plotting a movie-driven subscription streaming offering, but pricing for those hasn’t been announced.