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Netflix hikes prices for U.S. subscribers

Yahoo Finance's Alexandra Canal joins Zack Guzman to break down Netflix's new pricing model.

Video Transcript

ZACK GUZMAN: Today's Fame and Fortune segment, want to spotlight the price increases that are coming to your Netflix subscription. Streaming just got a bit more expensive, and here to discuss that with us, the Yahoo Finance's Alexandra Canal. And Allie, not good news for a lot of streamers out there.

ALEXANDRA CANAL: Yup, Netflix doing something interesting, once again, increasing their prices. The last time they did this was in January of 2019, they increased that standard plan, the most popular plan at Netflix, by 18%. They did see a few cancellations following that, however, it did accelerate their revenue growth, and that's what they're looking to do this time around. So, let's look at the breakdown on how this current pricing strategy is going to impact your Netflix subscription.

So, that standard plan I mentioned, the most popular plan at Netflix, that's going to be increasing by $1, going from 13 bucks a month to 14 bucks a month. The premium tier plan, that's going to be increasing by $2, 16 bucks a month previously, now that will be at 18 bucks a month. And then the basic plan is going to stay, as is, at $9 a month. Now, Netflix is doing this because they want to be able to continue to increase their content, continue to produce quality content.

This is nothing new, Netflix always spends a ton of money on their content. Over the past seven years, they steadily increased that budget, year over year, on content alone. This year they estimated that they would spend around $18.5 million, of course that could have changed due to the pandemic, but this is something that's increasingly important to them, especially as the competition in this space heats up.

But while we're talking about the competition, I do want to mention the pricing of both Disney Plus, Apple TV Plus, two really competitive forces in the streaming landscape. Disney Plus is 6.99 a month, Apple TV Plus is 4.99 a month. So when you compare that to the standard plan of Netflix, which is now at 14 bucks, it's nearly double that. So, I think it's really interesting that Netflix is choosing this option, right now. I am personally curious to see how this price increase is going to impact the cancellation rates this time around, because there is a lot more competition now than there was back in 2019.

But for now, investors seem to be happy with this. On the heels of that news, the stock surged nearly 5%, and today the stock is down almost 6%. That's probably due to the larger market sell off that we're seeing, but investors always like to see Netflix flex their pricing power muscle. So, for now this seems to be a good thing for them. But again, I do want to see how this impacts cancellation rates moving forward.

ZACK GUZMAN: Yeah, that'll be the big question because what we've been discussing here, not just some of those names you talked about, Apple and Disney, but also we saw T-Mobile moving into the streaming space, which is a different move in terms of pressure on the cable companies. A new survey is looking at how Americans are facing cutting the cord, versus leaning into some of these streaming options, so what are you seeing play out on that front?

ALEXANDRA CANAL: Yes, just because we have a lot more streaming options right now, doesn't mean people are willing to cut the cord, just yet. So this new survey from Staples, they surveyed 1,000 consumers across a variety of age groups, to try and investigate their viewing habits. And that top line number here is that 60% of respondents both pay for cable, and also pay for one or more streaming services. And even though some virus restrictions are starting to ease across the United States, although I do want to mention that places like El Paso, Texas, Newark, New Jersey, they are increasing those lockdown orders. People are still not willing to part with any type of viewing option, just yet.

So 48% of respondents said that they do not plan to cut the cord in 2020 amid the pandemic, versus 28% who said they would. And I thought that was pretty interesting that nearly 50% of those surveyed said they are willing to continue with their cable subscription. One big reason for that is access to certain channels like ESPN, the Discovery Channel, CNN, a lot of these are specialized, focused channels that you can really only find on a cable subscription. However, if these respondents were to cut the cord, a big reason for that would be to reduce their monthly overhead, and another reason that people gave was that there are enough options out there when it comes to the streaming landscape.

So I think that's a good thing that Netflix is focusing on their content, because at the end of the day, that's really what's going to attract consumers. And while we're talking about Netflix, this was a good thing that they can hang their hat on here, when asked if they had to choose just one streaming option, and then cut the cord, 46% said they would choose Netflix. So, Netflix still the leader in this space, but once again, we are very early. In the streaming landscape, there are a lot of streamers that just recently came out, and I think once consumers become more and more comfortable with that, Netflix could face some serious competition down the line.

ZACK GUZMAN: Yeah, we'll see what happens on that front. No doubt, the early innings yet, but Alexandra Canal, appreciate you bringing us that.