How long can Netflix keep its prices this low?
Netflix is going to raise prices. The only question is when.
The good news is that it’s not necessarily happening anytime soon.
“I wouldn’t expect any near-term price increases. Over the course of the next 18 months, I wouldn’t be surprised to see it rise as it has over the last 18 months,” said BTIG Research analyst Rich Greenfield.
It’s been almost two years since Netflix last increased its prices for U.S. customers, pushing the standard subscription to $9.99. The move was unpopular—naturally—but didn’t do much to dent the company’s impressive growth.
Since then, Netflix has shown its true ambition—to become the first truly global entertainment megapower. It launched aggressively into international markets and firmly established itself as a major player in the highest echelons of Hollywood, with the budget to match.
Consumers, however, will need to be convinced that any price hike will mean more and better content at a time when Netflix is starting to receive blowback from consumers about its library.
And yet, there’s a simple case for Netflix prices being too low.
The average Netflix viewer consumes about 93 minutes per day, based on an analysis of the company’s metrics by Time. That means the average person on a standard $9.99 per month plan gets a bit over four hours of high-quality, on-demand entertainment for one dollar.
Add on the fact that Netflix is spending billions of dollars on new shows and introducing new features like interactive content and downloads.
“I think the price value is pretty impressive,” said BTIG Research analyst Rich Greenfield. “The amount of content that’s been added over the last four years with the price still at ten dollars or less is pretty compelling for most consumers.”
Netflix declined to comment on when consumers in the U.S. could see another price increase, but did issue a statement: “From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience to help members find something great to watch even faster.”
There’s also a simple case for Netflix prices being just fine.
The company spends plenty of money but makes a healthy amount in return. It’s main priority right now is now is adding more subscribers, not squeezing every last penny from its existing subscribers.
And it hasn’t been that long since the last price increase.
“Given that they just got through implementing the last one, I think it’ll be a while before we see another,” said Jackdaw Research analyst Jan Dawson.
And there’s a simple case that Netflix should raise prices just because it could. Netflix’s price increase hardly seemed to stymie its growth or drive away existing subscribers.
“You never know, of course, and Netflix made it through the last one relatively well, with slightly higher churn for a few months, so it could decide to try again sooner,” Dawson said. “But my money would be on a couple of years from now, especially in terms of increases for existing customers.”
Netflix is also battling a growing feeling from some subscribers that the service’s library has become laden with filler rather than major movies and new TV shows. Media companies that were once happy to sell streaming rights to Netflix are now exploring other options. A major blow will come in the form of Disney, which will be pulling its library from Netflix once their contracts ends in 2019.
It’s a sentiment that could prove difficult to overcome despite the company’s introduction of new features and original content.
Lastly, there’s an even simpler case that Netflix should—and will—raise prices.
Getting three DVDs by the mail from Netflix used to cost $16.99 per month back in 2007. Netflix’s standard streaming service now costs $9.99 per month.
Let that sink in for a moment. Netflix now offers original series, comedy specials, children’s programming, documentaries, movies, and plenty more on-demand—and it’s cheaper than getting a few DVDs in the mail.
Meanwhile, HBO Now costs $15 per month, and has considerably less content. Most online TV bundles cost around $35. Amazon Prime comes in at $8.25 per month, though its video offerings aren’t anywhere near what Netflix has.
In pure bang-for-buck value, Netflix is only getting better, primarily because it’s spending billions of dollars on original content and adding to existing deals to spend billions more on rights for content from other companies.
That spending is exactly why Netflix will eventually have to raise prices. Those deals have already put some pressure on the company for just how much money its spending in the next few years. It has somewhere around $20 billion in commitments for either original series or rights to content made by other companies. That led to some speculation that the company could be getting ahead of itself, possibly placing major bets that would not pay off if user growth stalled.
Those concerns haven’t come to fruition, as Netflix subscriber growth has remained strong both in the U.S. and around the world. For now, Netflix is simply making a good amount of money off of how much it’s spending. And with growth still the top priority, a price increase doesn’t seem necessary.
But a price increase is inevitable. Netflix is simply spending too much money and providing too much value to consumers to keep prices steady. It might not happen this year, but analysts are expecting it.
Enjoy it while it lasts.