Will price hikes curb growth?

Low­est tier won’t see hike, so sub­scribers un­likely to bail out

USA TODAY Weekend Extra - - FRONT PAGE - Mike Snider @mikesnider

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.

The Hand­maid’s Tale, star­ring Elis­a­beth Moss as Of­fred, is an orig­i­nal drama se­ries on Hulu that won the stream­ing ser­vice five Em­mys last month.

The Net­flix orig­i­nal doc­u­men­tary What Hap­pened, Miss Si­mone? is among orig­i­nal pro­gram­ming help­ing the ser­vice main­tain its pop­u­lar­ity.

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