WILL HIGHER NETFLIX PRICES LEAD TO STREAMING SLOWDOWN?
NOT LIKELY Lowest tier won’t see hike, so subscribers unlikely to bail out
Netflix is raising the prices on its most popular subscription plans. Will that cause consumers to cool their streaming video spending? Probably not. Consumers have become attached to Netflix and other subscription video services such as Hulu and Amazon Prime Video and the immediacy of binge viewing the services offer. And even though low monthly prices have helped drive adoption, price increases — at least one the size Netflix announced Thursday, $ 1 or $ 2 more per month — won’t necessarily lead to defections.
“Netflix has a lot of headroom for price increases,” said Michael Greeson, president and principal analyst for The Diffusion Group, a research firm in Plano, Texas. “The service offers tremen- dous value even at the higher — but still very low — monthly costs.”
In fact, demand is so strong that analysts expect consumers, whether they’ve canceled cable or just added these streaming services to their monthly entertainment bill, to swallow further price hikes — which could come from Netflix or rivals Hulu and Amazon.
Amazon hasn’t risen the price of its Prime service — $ 99 annually for free shipping, along with Prime Video, Prime Music, unlimited photo storage and other perks — in more than three years. It only began offering Prime Video ($ 8.99 per month) separately last year. So it could be due for an increase soon.
Hulu, which is owned by four major entertainment companies, launched a subscription service seven years ago and now costs $ 7.99 monthly with limited commercials and $ 11.99 monthly for commercial- free viewing.
Netflix’s move, Greeson said, “gives permission to other ( streaming) providers to consider price increases. Of course, their economics and user base will vary, but I think Amazon Prime and Hulu subscribers could tolerate a small price increase just about as well as Netflix.”
Last year, U. S. consumers spent $ 8.2 billion on streaming services. U. S. consumers are expected to increase their spending on streaming services by 17% this year and more than 13% next year, according to consulting firm PricewaterhouseCoopers.
Helping drive all this: the growing number of homes with broadband Internet service, expected to hit nearly 100 million this year, up from 97.6 million last year, according to The Diffusion Group. The number of broadband homes has surpassed those with pay TV service, the research firm estimates.
Netflix — in nearly half of U. S. broadband homes, according to Park Associates — has angered customers with past price hikes. Six years ago, for example, Netflix lost 800,000 U. S. subscribers when it raised the prices for its plan offering streaming video and DVD rentals from $ 9.99 to $ 15.98.
This one should go much more smoothly, Scott Devitt, a technology analyst at Stifel Financial Corp., said in a note to investors Thursday.
Netflix is “still the best value on the consumer Internet,” he said.
ADD THEM ALL UP
If consumers are paying for all of these services — and all of them theoretically increase in price — some might wonder if it’s really worth ditching cable for streaming alternatives.
Say you subscribe to all three major players, Netflix, Amazon and Hulu, as about 7% of subscribers to broadbanddelivered TV services do, according to Parks Associates, an Addison, Texasbased market research firm. Do that and your monthly cost is $ 28-$ 35.
Add in Hulu’s live TV service or one its competitors — if, say, you want live sports or news — and your monthly bill increases by $ 20-$ 70. That gets you into the $ 50-$ 100 range.
Want to see Game of Thrones? Better add HBO Now, which costs $ 14.99 monthly ( unless you subscribe to DirecTV Now, which lets you add it for $ 5 a month).
There are so many new streaming services that, despite their willingness to let you leave whenever you want, some consumers might have accumulated multiple subscriptions and lost track of how much they are spending.
“Hypothetically, if you keep cobbling together this experience and ... it is now the price of a large pay- TV package, you might go, ‘ OK, this doesn’t really make any sense,’ ” said Bruce Leichtman, president and principal analyst for Leichtman Research Group, a Durham, N. H., research firm that tracks media and entertainment.
Conventional wisdom is that cord- cutting is the main driver of growth in streaming services. But in reality, Netflix and other Internet video services are attracting even more consumers who already have traditional pay- TV packages than those who have cut the cord or who have never had pay TV.
Only 15% of those who get Netflix or another streaming service do not have a pay TV service, Leichtman said. That suggests less price sensitivity because those pay- TV customers are already paying more than $ 80 monthly, on average, he said.
CONTENT MAKES THE DIFFERENCE
Consumers who already pay $ 80 or more for pay TV subscribe to Netflix, Amazon and Hulu because each has developed its own library of top- notch content — the cost- intensive productions that drive these price hikes.
In the end, it will likely take more than a $ 1 to $ 3 price hike — $ 12-$ 36 a year — to convince a subscriber to drop Netflix, Amazon or Hulu.