Netflix reports its fourth-quarter 2018 earnings on Thursday afternoon and as usual, subscriber additions will be in focus—but this time the earnings report comes two days after the announcement of a price hike.
Netflix announced on Tuesday it is raising prices on all of its subscription plans; the most popular plan will go from $11 to $13 per month. The increases are meant to help offset the billions of dollars Netflix is now spending each year on original content.
But it can’t keep raising prices forever to offset costs—right? Many onlookers have wondered what happens if Netflix eventually hits a ceiling with subscriber prices and needs to find another revenue stream. Might it start selling ads?
BTIG media analyst Rich Greenfield doesn’t think that day will ever come.
“There’s no ‘ceiling’ for Netflix in terms of how much someone will spend,” Greenfield said on Yahoo Finance’s live show On The Move. “When you look at the price of a cable subscription that is $80, $90, $100 a month now, spending $13 for Netflix is still an incredible price value, especially when you look at how much content has come onto Netflix over the last couple of years... And I don’t think they’re ever going to do ads.”
He’s also not too concerned about Disney’s forthcoming Disney+ streaming service, which launches in late 2019 and will mean Netflix losing a ton of Disney content.
“The more competition that comes in, the easier it is for consumers other than diehard sports fans to cut the cord,” Greenfield reasons. “That frees up $50, $60, $70 a month for you to go spend on Netflix, Amazon, Hulu, you want to get Disney+, sure… there is so much wallet share that opens up as you disconnect from the legacy bundle. This is not a problem for Netflix.”
Greenfield isn’t the only Netflix bull. IAC chairman Barry Diller, in an interview for Yahoo Finance’s “Influencers” series, says he believes Netflix can keep raising prices even with increased competition in streaming, because “Once you've built up to 200 million or so subscribers, it's very hard for anybody to come close. Eventually, the dollars will rationalize and I think [Netflix’s] cash flow will be huge.”
In its Q3 2018 report, Netflix reported it had 137 million subscribers.
As Greenfield points out, Netflix price hikes were once controversial, and greeted with some with outrage. These days, no one bats an eyelash. The latest price hike is the biggest in Netflix’s history but is being greeted with almost zero blowback. “It’s pretty amazing how the perception of the price value of Netflix has shifted so significantly, and I think that’s because of the content,” Greenfield says.
Netflix is on something of a hot streak in the last year with original shows like “Ozark” and “Stranger Things,” and original movies like “Roma,” “Bird Box,” and “Black Mirror: Bandersnatch.”
Indeed, a Jan. 15 Piper Jaffray survey conducted over the past six months found that 71% of Netflix subscribers “feel that Netflix content has improved in the past year. We believe, as long as the vast majority of subs perceive that the service is improving, Netflix will be positioned to periodically raise prices.” Piper Jaffray concludes Netflix could charge $15 right now for the plan that it just raised to $13.
Greenfield illustrates his bullish outlook for Netflix with the price comparison to a movie theater, though movie buffs would likely retort that a movie theater outing provides an experience you can’t get at home on the couch.
“For me to go to a New York City movie theater, just myself, forget about bringing my kids or my wife, just me going costs $16,” Greenfield says. “Netflix at $13 a month I think is a relatively incredible price value. So I think there is a long way they can go in terms of raising price.”
Daniel Roberts is a senior writer at Yahoo Finance and closely covers streaming tech. Follow him on Twitter at @readDanwrite.