Netflix Raises Prices to Stockpile for the Streaming Wars

On Tuesday, Netflix announced that it would raise prices across all of its plans in the US. For most people, that means their $11 monthly rate will hop to $13 over the next few months. New customers will pay the higher price starting today. No one likes a price hike, especially given that Netflix just bumped its most popular subscription’s cost in 2017. But this round’s timing seems especially inauspicious given the flood of streaming competition—from Apple, Disney, WarnerMedia, NBC, and more—that lies just ahead. Or maybe that’s the point.

“On the surface, it does seem to be a bit of jeopardy to increase prices when the competitive services are coming,” says Tony Gunnarsson, a principal analyst at Ovum focused on the streaming media business. Take the Disney+ streaming service, due to arrive later this year. Not only will it yank all of the Marvel, Star Wars, and other Disney-owned content off of Netflix, the Mouse House has also telegraphed that it’ll cost less. Widening that gap by two more dollars seems contrary to Netflix’s own interests, especially when you add in all the other heavy hitters in media gearing up for subscriptions of their own.

But you don’t have to look very far below the surface to see how Netflix’s move actually makes sense. Remember that the company has 58 million US subscribers; that’s about half of all TV households in the US. For many of them, it has become as indispensable as a cable subscription once was.

“The key thing with Netflix is that they have become a must-have, essential service,” says Gunnarsson. “For consumers, it’s the first streaming service you subscribe to and then you add others after that.”

Recent history has borne that out. Over the dozen years that Netflix has offered streaming, it has raised prices four times, including Tuesday. The previous attempts resulted in negligible churn, the industry term for people quitting their accounts.

“In the past, price increases have not had a long term impact on subscribership,” says Brett Sappington, director of research at Parks Associates. “Until consumers complain or competitors begin to take customers away, Netflix can continue to bump prices.”

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Surely a ceiling exists somewhere for Netflix, but $13 seems an unlikely place for it. After all, that’s still a couple of bucks cheaper than HBO.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” the company said in a statement.

And while Netflix this year will face down a more competitive landscape than it ever has, it’s important to maintain some perspective on just how big a threat all those new services pose, at least in the near term. Other than Amazon, no streaming service has come anywhere close to Netflix’s reach. It’s not just playing from a lead; almost no one else is even in the same stadium. Which is to say, the point at which a significant number of US consumers will be thinking hard about whether to put their dollars toward Netflix or Disney+—to whatever extent it’s one or the other—remains years away.

In the meantime? Netflix will continue funneling that subscription revenue into original content. Shooting Bird Box incurred “qualified expenditures” (which doesn’t include huge swaths of budget like cast and director fees) in the ballpark of $20 million. Netflix spent a reported $90 million on 2017’s Bright, its first tentpole blockbuster. And recent estimates have pegged the company’s overall 2018 original content budget at $13 billion. Investing heavily in its own shows and movies has undeniable benefits; Netflix doesn’t have to navigate international licensing thickets to show them around the world, and they’ll all remain on the service indefinitely. Most of all, its streaming catalog already dwarfs what Apple or even Disney and TimeWarner will be able to offer at launch, both in scale and variety. The more money Netflix takes in, the more it can provide something for everyone, attracting new subscribers, who add more revenue, which becomes more shows, and on and on.

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