Netflix (NFLX), on Tuesday, said it’s raising prices on its subscription plans with the cheapest now topping out at $9 per month, and the most expensive $16 a month. I've looked outside my window, and it seems like the price increase hasn't led to mass civil unrest. And judging by the relatively muted, by internet standards, response to the price hike, it seems as though most subscribers are willing to accept the roughly $2 more they'll have to pay.
All of that is to say, Netflix, despite the price increase, is still a worthwhile buy for consumers. But with more competition coming its way, the company may not be able to continue raising prices and expect subscribers to stick with the service in the future.
Binging is still worth it
When Amazon (AMZN) increased its price for Prime subscriptions from $99 a year to $119 a year, denizens of the internet reacted with outrage. Some even threatened to leave the service all together, even though the increase was well worth the access to free two-day shipping, as well as Prime Video and Prime Music.
Netflix, meanwhile, costs $108 a year for its $9-a-month plan and $192 a year for its $16-a-month premium plan, which gets you four simultaneous streams and access to 4K, HDR content. And still, that price is worth it when you consider the vast amount of content Netflix offers ranging from older favorites like "Friends," which the company recently spent $100 million on, to feature-length movies like "Bird Box" and newly minted iconic series like "Stranger Things."
And let's not forget the billions of dollars the company continues to spend on new content in the U.S. and abroad. With so much to watch, across so many different genres, there just isn't anything quite like Netflix available to consumers.
In a 2018 survey of 1,100 Netflix subscribers, Piper Jaffray's Michael Olson and Young Kim found that most users were willing to pay more for the service, while some were fine with paying significantly more.
"Using a weighted average of prices that respondents are willing to pay, they indicated they would remain on the service even if the current rate were $15.50/mo," the analysts' note said. "In other words, there is even more room for price increases beyond the $13/mo level that the Standard plan was just increased to by Netflix."
Wall Street seems to be just as upbeat about the pricing increase with the stock jumping more than 6%. Netflix is expected to announce its Q4 2018 earnings on Jan. 17, but the pricing increase isn't going to have any impact because the quarter already ended.
The party won't last forever
Netflix’s latest price increases probably aren’t drastic enough to send consumers fleeing, at least not yet. But that doesn't mean the company can continue to hike prices without eventually facing some kind of backlash from consumers.
It's hard to imagine subscribers to the base $9 version of Netflix will stick around if the price jumps to $16. And if prices eventually hit the $20 mark, consumers could start to leave the service.
Outside of the potential for pricing fatigue, Netflix also has to contend with a growing number of big-name competitors. NBC announced it will soon begin offering its own over-the-top streaming service that could offer shows like "Parks and Recreation," as well as a slew of movies for roughly $12 per month.
Disney (DIS) is also set to launch its own streaming platform this year, though pricing isn't yet available. That service in particular could hurt Netflix, since Disney will be able to ensure that content it owns, including Marvel and "Star Wars" properties, appears only on its platform.
Apple (AAPL) is also expected to launch a streaming service in 2019 that is drawing big names like Steven Spielberg. And with the recent announcement that Apple will begin offering its iTunes apps via Samsung TVs, the iPhone maker's unnamed service is sure to have a massive reach.
Then there are the existing streaming services out there that Netflix is already battling including Hulu and Amazon, as well as streaming cable offerings like Google’s (GOOG, GOOGL) YouTube TV and Sony’s (SNE) PlayStation Vue, which could eat into Netflix's market share over time.
Netflix's biggest hedge against that competition is its commitment to continue to produce its own addictive and critically acclaimed content. And with the service's film "Roma" generating plenty of award season buzz, it looks like the company is on track.
But Netflix might start to fall behind if it loses its content mojo, or if it spends too much money on underperforming movies or shows.
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