Netflix recently announced that it is increasing the cost of its standard plan by $1 (to $14 per month) and its premium tier by $2 (to $18 per month). The service’s most basic tier, however, is remaining just $9 per month. A price hike during a pandemic, and right before the holidays, could be viewed as less than ideal timing, but the leading streaming platform hasn’t raised prices since January 2019 and continues to invest in original, exclusive content – it’s been estimated that Netflix has allocated more than $17 billion in 2020 alone to secure more content.
Last year, Netflix acknowledged that video games like Fortnite could be a bigger long-term threat to the company than competitors like Hulu or HBO Max. To that end, the platform has invested more in interactive content like Bandersnatch and game-based content, including the documentary High Score and series like Castlevania, The Witcher and Assassin’s Creed. CEO Reed Hastings has also said that entering the video game space directly is not out of the question.
For the immediate future, Netflix is taking a chance by raising prices, potentially risking its position as a staple for streaming households. Not only is the streaming service under more pressure from newcomers like Disney+, Peacock, HBO Max, and Apple TV+, among others, but Interpret’s New Media Measure® indicates that increases in price are one of the main reasons for cancellation, just behind watching it less. When you combine that data point with the fact that over a third of Netflix’s subscriber base in the US is spending less on entertainment overall because of COVID, the likelihood of Netflix having reduced user growth or losing some customers in the months ahead goes up.
Some amount of churn is natural for any streaming platform, especially one as big as Netflix – it expects to have around 200 million subscribers globally by the end of the year. Netflix enjoyed back-to-back quarters of higher growth earlier this year during the pandemic but recently saw a slowdown. Nonetheless, investors believe that Netflix’s decision to raise pricing was a prudent one, as shares rose 5% the day after the announcement.