This story was delivered to Business Insider Intelligence "Digital Media Briefing" subscribers hours before appearing on Business Insider. To be the first to know, please click here.
Netflix announced its fifth price hike in company history — its biggest percentage increase since 2011 — and the first uptick that will affect pricing across all three service tiers, according to the Associated Press.
The new pricing will roll out to all 58.46 million paid US subs within the next three months, and all new domestic subs immediately. The increase will also affect some subs in Latin American countries where the service bills in US currency. Netflix last raised prices on US subs in October 2017.
Pricing across the service tiers will now look like this, for domestic (US) subs:
- Basic tier, with one non-HD stream — $9 a month, up 12.5% from $8
- Standard tier, with up to two HD streams (Netflix’s most popular plan) — $13 a month, up 18% from $11
- Premium tier, with up to four UHD (ultra high-def) streams — $16 a month, up 14.3% from $14
The big risk for Netflix is that subs balk at price increases and leave, particularly amid some pullback of licensed content by traditional media companies. It’s increasingly important for Netflix to add subs as subscriptions continue to be its only revenue stream, and as it continues to plow billions of dollars into content and talent deals (a projected $13 billion in 2018, per Goldman Sachs estimates, of which 85% is allocated to originals) and rack up billions in debt.
The streaming giant has accumulated nearly $12 billion in long-term debt, before raising another $2 billion in an October 2018 bond offering. The company stands to lose as much as 20% of total platform content amid the licensed media pullback by traditional media companies like Disney, WarnerMedia, and NBCUniversal, per Ampere Analysis.
Despite rising debt levels and a likely content pullback, we remain bullish on Netflix’s ability to weather risks and forthcoming competition.
- Netflix subs have proven increasingly impervious to price hikes. In the quarter after the company’s last price hike in October 2017, Netflix nevertheless added 1.96 million domestic subs, and has continued to add domestic subs quarter-over-quarter since, despite market saturation fears.
- The timing of the price increase indicates Netflix is confident. Rolling out a meaningful price hike at the start of a year when multiple competitors (Disney, WarnerMedia, Apple) are expected to launch their own SVOD services is a huge display of confidence by Netflix. The company clearly feels its product can not only continue to attract subs at a higher price point, but that it can weather (and beat) new entrants. Second, the timing of the price increase is a strong indicator that Netflix had a great Q4 (i.e exceeded sub add expectations), coming just two days ahead of Netflix’s earnings release tomorrow.
- Netflix is, by several markers, solidifying itself as a must-have for US households. Netflix is the most common SVOD service in US TV households, per Parks Associates, expected to have a penetration of more than half of all US broadband households. Further, Netflix is now the most popular platform among US consumers for watching TV overall — above even pay-TV and OTA broadcast: 27.2% of US adults said they use Netflix most often to watch video content, versus cable (pay-TV) at 20.4% and broadcast (OTA) at 18.1%, per a Cowen survey. If Netflix is not already a viable pay-TV replacement for many households, it is certainly a strong supplement. Netflix is also betting on its growing cultural cachet to further entrench it as a must-have, as its original content continues to win awards and even influence internet culture: In the week after its release, original film “Bird Box” generated a wave of meme-sharingacross social platforms like Instagram, for example. Netflix leads among streaming rivals for having the best original content among young people — 68% of millennials chose Netflix as having the best content, versus HBO at 19% and Amazon Prime Video at just 4%, per Business Insider Intelligence’s 2018 SVOD survey.
Subscribe to a Premium pass to Business Insider Intelligence and gain immediate access to:
Learn MoreThis report and more than 250 other expertly researched reports Access to all future reports and daily newsletters Forecasts of new and emerging technologies in your industry And more!