Why Netflix keeps cranking up its prices – The Verge


imageEvery year, the cost of streaming gets more and more expensive — and just last week, prices started going up again.Netflix announced that all of its tiers would get an immediate price hike for new subscribers, boosting its most expensive plan to $20 per month.It’s the third price increase since 2019.

At $15.50 per month , Netflix’s standard tier now slightly out-prices HBO Max ($15 per month) and the Disney Bundle (which includes ESPN Plus and Hulu for $14 per month), making it one of the most expensive on-demand streaming options among leading services.If you want 4K, it gets even pricier.That’s not an insignificant amount of money, considering people tend to have around four paid streaming subscriptions, according to recent data from Deloitte.

While the price hikes sting for consumers, it’s safe to expect they’ll continue — especially for Netflix.Growth opportunities have stalled, and the company’s spending on content continues to grow.

To keep up, Netflix has to either increase the number of subscribers paying for its service or ask its existing customers for more money.And right now, Netflix knows it can.

“They’re doing pretty well, but they’re going to continue to tighten up their finances as time goes by,” Parks Associates senior analyst Paul Erickson tells The Verge .

“This is the fundamental way in which they do that — small incremental price changes over time.Because they feel they are so well entrenched, and their customers are loyal, they feel that it’s not going to materially affect their subscribership.”

“The money has to come from somewhere.” One of the big reasons Netflix needs money is to pay for new shows and movies.Streaming services are spending a frankly outrageous chunk of change on original programming, with global spend expected to exceed $230 billion in 2022, according to estimates from firm Ampere Analysis.Ampere positions Netflix as the third-largest investor in video content, surpassed only by Disney and Comcast — both of which the firm notes invest in pricey sports rights.

By dumping truckloads of money in original programming, streamers hope to not only hang onto their existing customers but lure in new subscribers as well.

For Netflix, expanding its programming across genres and categories helps it be everything to everyone.Investing in an ever-growing portfolio of scripted, unscripted, animated, and live-action programming helps ensure that Netflix remains a monthly subscription.

“The more that they can serve all the different aspects of different households — whether that’s language specificity, if it’s market and lifestyle specificity — the better,” Erickson says.This allows Netflix to justify positioning itself as a core, must-have entertainment service.And if its 200 million-plus paid subscribers are any indication, the strategy is working.

But there’s another reason Netflix has turned to price increases to raise more money.

Even with its hundreds of millions of active subscribers , Netflix’s subscriber growth has begun plateauing .The company continues to add subscribers, but the number of quarterly additions has dipped in recent years (in some cases, even falling below forecasted figures).Netflix’s content spend, meanwhile, only continues to grow , with the company spending billions on programming every year.And with major competitors like Disney Plus and HBO Max entering the market, they’re only likely to keep growing so Netflix can remain competitive.

This is likely to come up in the company’s earnings call later today, as investors are worried about slowing subscriber and revenue growth .

In addition to paying for the content it needs to continue scaling its business, Netflix also has to keep its antsy investors happy as well.

“If you use Netflix every day, then you kind of don’t pay attention.” Without taking the highly maligned step of simply kicking all of us off our exes or parents’ plans — Netflix boss Reed Hastings has described shared accounts as “something you have to learn to live with” — Netflix has to figure out a way to counterbalance its debts.

“The money has to come from somewhere.A company can only pay off its debt and get to true profitability with hard cash,” Erickson says.

At the same time, small incremental price increases every year and a half or so probably won’t impact subscriber turnover for a service that customers use often or one that’s central to their cord-cutting portfolio.

“Does the consumer feel that Netflix is a good value at the price? If the answer is yes, overwhelmingly they can raise prices and pretty much nobody quits,” Michael Pachter, a managing director at Wedbush Securities, tells The Verge .“If you use Netflix every day, then you kind of don’t pay attention.”

Historic trends for price hikes offered a clue that another was coming for US subscribers sometime soon.Additionally, Netflix COO and chief product officer Greg Peters said during an earnings call last year that by delivering what Netflix feels is “an amazing entertainment value” through content and user experience, the company can occasionally go back to its subscribers and “ask them to pay a little bit more to keep that positive cycle going.” In other words, a price increase was just as good as promised by Netflix — but cracking the teens is still a pretty significant milestone for the streamer.

Setting aside the decade or so lead that Netflix has on its rivals for everything from viewing data to its catalog, pretty much every move Netflix makes is driven by making its streaming service as addictive as possible, which, again, costs money.Whether that’s expanding its sports offerings , taking big swings with both critically adored and up-and-coming directors , or expanding characters and worlds with gaming , Netflix is burning through cash to try to keep you hooked on its service.

“They’re going to continue to innovate because now that they know they’ve got to weight in the industry, weight for original content creation — it’s not just a fluke,” Erickson says.

“It’s proving to be viable for them to continue to diversify what they’re doing content-wise, even if it means going outside of the traditional volumes and types of content that they’re used to delivering.”

Netflix enjoys an arguably unrivaled brand loyalty in the streaming space — it’s synonymous with streaming.At the end of the day, Netflix is cranking up its price by a buck or two every couple of years simply because it can.It’s safe to assume it’ll continue doing so, too..

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