Will price hikes curb growth?
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 tremendous value even at the higher, but still very low, monthly costs.”
New Netflix subscribers now pay $10.99 monthly, a dollar higher than the previous rate, for the most popular plan: high-def video watchable on two simultaneous screens. The $11.99 premium plan, which lets you run Netflix on four screens and get 4K video, goes up $2 to $13.99.
Price increases for current subscribers will be rolled out over the next few months, depending on their billing cycles, the Los Gatos, Calif.-based Net TV provider says. Each will be notified at least 30 days in advance of the price hikes, starting Oct. 19.
Netflix has increased its prices before, and things didn’t always go smoothly. Six years ago, Netflix hiked the prices for its plan offering streaming video and DVD rentals from $9.99 to $15.98 and lost 800,000 U.S. subscribers.
Two years ago, it raised by $2 the price for its most popular standard plan for new members — current subscribers got the increase last year — a move that led to a growth slowdown, as some subscribers left.
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. “We think the company’s nuanced approach may minimize subscriber disruption this time around. Since the most valueconscious consumers will not see their plan increase in price, the members most likely to cancel will have no reason to.”
Consumers are expected to keep spending more on subscription video-on-demand services like Netflix, Amazon Video and Hulu. Last year, U.S. consumers spent $8.2 billion on streaming services and spending is projected to rise 17% this year to $9.6 billion this year, according to consulting firm PricewaterhouseCoopers. Next year, spending is expected to increase more than 13% to $10.9 billion.
Helping drive all this: the growing number of homes with broadband Internet, expected to hit nearly 100 million this year, up from 97.6 million last year, according to The Diffusion Group. Last year, the number of broadband homes surpassed those with pay TV service (96 million in 2016, expected to drop to 94.6 million this year), the research firm estimates.
Netflix, Greeson said, “is still a very good deal” for those not wanting traditional pay-TV.
But what if all of Netflix’s competitors decide to increase their prices, too?
Amazon, for starters, hasn’t raised 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 monthly) separately last year. So it could be due for an increase sometime soon.
The pricing is trickier for Hulu because the service’s subscription model has constantly evolved. Hulu — owned jointly by The Walt Disney Company (ABC), Comcast (NBCUniversal) and 21st Century Fox, each of which holds a 30% share, and Time Warner — began as a free viewing site with advertisements. Hulu launched a subscription service seven years ago and currently offers TV and movies on demand for $7.99 monthly with limited commercials and commercialfree viewing for $11.99 monthly.
Back in May, Hulu also joined the growing ranks of live TV services, including DirecTV Now, Sling TV, Sony’s PlayStation Vue and, most recently, YouTube TV, with its $39.99 monthly package of more than 50 channels in addition to Hulu’s on-demand library.
Netflix’s move, Greeson said, “gives permission to other (streaming) providers to consider price increases.”
“We think the company’s nuanced approach may minimize subscriber disruption this time around.”
Scott Devitt, a technology analyst at Stifel Financial Corp.
Hulu, like Netflix, offers multiple pricing tiers.
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