If you are one of Netflix’s millions of U.S. subscribers, you can expect the price of the streaming service to increase for the top two tiers of its subscription plans, says Variety. Viewers with the Basic plan will remain at $8.99 per month. Subscribers on the Standard HD plan will pay $13.99 per month, a $1 per month increase, and Premium 4K plan subscribers will pay $17.99 a month, a $2 per month increase. Canadian subscribers saw a price increase in October. According to one analyst, this price increase could yield anywhere from $500 million to $1 billion in revenue for Netflix in 2021, Variety reports.
According to Netflix’s website, the popular streaming service reserves the right to change pricing as they add more TV shows and movies and introduce new product features.
“When we change plans or prices, we’re always working to improve the Netflix experience and invest in quality content for our subscribers around the world,” said Netflix.
Netflix will notify affected U.S. subscribers by email when the price changes will go into effect. New subscribers will pay the increased fees, effective immediately. Netflix last increased its pricing in early 2019, raising the Basic plan by $1 per month, and the Standard and Premium plans by $2 per month. Once Netflix announced its price increase, Hulu responded by dropping theirs, hoping to scoop up frustrated Netflix subscribers.
No more free trials
This is the second major change Netflix has made recently. Two weeks ago, we reported the Netflix has discontinued free trials for U.S. subscribers. Viewers in some countries still have access to free trials, but that number is dwindling as Netflix reconsiders its business model. In June, Disney+ discontinued free trials as well. The difference between Disney+ and Netflix besides content, however, is that Netflix still offers limited free content.
Viewers who want to sample Netflix content don’t need to provide a payment method. They can visit Netflix.com/Watch-Free and click “Watch Now” for access to a rotating selection of shows like Stranger Things, Murder Mystery, Elite, and Our Planet.
Third quarter financials
The week before Netflix announced the price increase, the company released its third quarter financials. The company’s membership had grown to 195.15 million, a 23.3% increase over the third quarter of 2019. The company reported net income of $790 million, or $1.74 earnings per share, compared to $665 million, or $1.47 earnings per share, in Q3 2019.
While these numbers are impressive, growth over the first two quarters of the year has slowed. Netflix predicted that it would not be able to continue to grow at the pace set earlier in the year. Regardless, the company has still added more subscribers this year than it did in all of 2019. The boost can be attributed to the spike in at-home viewership during the coronavirus pandemic. The company estimates an additional 6.0 million new members in the fourth quarter.
We are a bit surprised by the timing of this announcement. Netflix has steadily raised its prices every few years. While some churn can be expected, Netflix will likely not experience a mass exodus of subscribers, but why now? The company has already eliminated free trials, and it looks like Americans will be stuck at home for the foreseeable future. We are sitting ducks, and Netflix knows that.
We probably aren’t going to cancel our subscriptions when some of our favorite series will be returning this fall and winter, but for the tens of millions of Americans out of work, an extra $1 or $2 a month may be enough of a cost increase for them to move to one of the many other streaming video subscriptions now available. Peacock’s paid plans, Hulu and Disney Plus, for example, are available at significantly lower price points.
From a subscription company’s standpoint, the company has annual content obligations of $19.1 billion, and as they add new content and update features for the streaming video subscription service, Netflix has to plan ahead. They are banking on the fact that a buck or two won’t make a huge difference for everyone, and that’s a chance they are willing to take. Their churn rate for the fourth quarter will tell them if they’ve made the right decision.