In its biggest price hike to date, Netflix (NASDAQ: NFLX) is raising subscription rates for more than 58 million U.S. subscribers, reports the Associated Press. Netflix’s three streaming plan options, all of which are ad-free, will go up $2 each per month, effective February 15, 2019. After their one-month free trial, new subscribers will be charged the new rates. Existing customers will see the price increases over the next several months, depending on their billing cycle. The Netflix site already shows the new plan pricing.
Netflix subscription plan options and pricing will change to the following:
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- Basic plan: 1 screen plan, standard definition, will go from $7 to $9 per month
- Standard plan (the most popular plan): 2 screen plan with high definition, when available, will go from $11 to $13 per month
- Premium plan: 4 screen plan with high-definition/ultra-high-definition will go from $14 per month to $16 per month
According to the Associated Press, this is Netflix’s fourth price hike for U.S. subscribers since the service started in 2012. Netflix will use the extra subscription revenue to invest in original programming like Stranger Things, Ozark, ROMA and Orange is the New Black, pay licensing fees for TV shows and movies, pay off its existing debt and compete with other streaming video on demand services including Amazon Prime Video, Hulu, Sling TV and DirecTV Now.
In its third quarter letter to shareholders, Netflix acknowledged the growing competitive landscape:
“As internet entertainment grows, more companies see the large opportunity. Content companies such as WarnerMedia and Disney/Fox are moving to self-distribute their own content; tech firms like Apple, Amazon and others are investing in premium content to enhance their distribution platforms. Amid these massive competitors on both sides, plus traditional media firms, our job is to make Netflix stand out so that when consumers have free time, they choose to spend it with our service,” Netflix said.
So why a price hike now? Netflix offered a stock answer in a statement: “We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience.”
According to Variety, Netflix’s last rate hike was in the fourth quarter of 2017 and Netflix suffered very little repercussions, including minimal cancellations and no interruption of net new subscribers. Investors seem to be pleased with the news. On Monday, January 14 – the day before the rate increase announcement – Netflix stock closed at $332.94 per share. It jumped to $354.64 per share on Tuesday and was valued at $351.39 per share as of 7:59 p.m. EST yesterday.
We find the timing for this rate increase a bit odd with so many other large entertainment companies like Disney and WarnerMedia announcing they will offer their own subscription streaming services. This news also comes at a time when free, ad-supported streaming services like IMDb’s Freedive (owned by Amazon) and Tubi are launching to offer an alternative to paid services like Netflix and Hulu. Also, Netflix will be posting its fourth quarter financials soon. Are they trying to pre-empt a less-than-stellar report? Why would Netflix announce an across-the-board rate increase to more than 58 million subscribers when competition is growing? The timing doesn’t make sense.