Netflix is increasing its price for American subscribers by $1 to $2 in May 2019 depending on the plan. The streaming service announced the price increase earlier this year and emailed its users this month with the details of the rate hike. “Why? We’re hard at work improving Netflix so that you can have even more great TV shows and movies to enjoy,” Netflix said in an email on April 3.
Netflix offers three different levels of subscription plans to its users in the United States: basic, standard and premium. Basic subscribers will see their monthly rate increase from $7.99 per month to $8.99 per month, the company announced. Standard subscribers will see an increase from $10.99 per month to $12.99 per month. And premium subscribers will see an increase from $13.99 per month to $15.99 per month. The price increase constitutes a rate hike of between 13 to 18 percent, its largest-ever hike.
All three packages allow for unlimited streaming, but the quality of the video changes depending on the plan. The standard plan provides HD-quality streaming and is the most popular Netflix plan, while the premium plan provides access to Ultra-HD quality streaming. Along with the American subscribers who will be seeing their monthly rate hiked, some users in Latin America will also see higher prices. Customers that live in Belize, Barbados and Uruguay will have to pay the new rates because they are billed in American dollars, Netflix said.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our member,” Netflix said in a statement to Heavy.
Here’s what you need to know about Netflix’s new price increase:
1. Netflix Says the Price Increase Will Allow the Company to Invest in More Original Content
Netflix said in January when announcing the planned price increase that it would allow the company to invest in more original content, including scripted TV shows, documentaries and movies. According to CNN Business, Netflix has already been investing heavily in new content. The company budgeted $8 billion for new shows and movies in 2018, according to its 2017 third-quarter earnings report.
The investments in high-quality original content has paid off for the streaming giant. The company took home three Academy Awards earlier this year, including Best Director for its film “Roma,” which was also nominated for Best Picture. And at the last Emmys, Netflix shows took home 23 awards, tying for the most wins with HBO.
“If you keep adding more content that people like then the price point is a moving target,” BTIG media analyst Rich Greenfield told CNN Business. “There isn’t really a ceiling.”
Ravi Dhar, of the Center for Consumer Insights at the Yale School of Management, told CNN, “Netflix prices, compared to the value it provides, is still attractive if you look at Hulu, HBO, etc., so Netflix has decent room to charge somewhat higher prices. How much does a movie cost in a theater? Compare that to how much content people watch on Netflix and its cost. It is still far more economical and easy to justify.”
Ted Sarandos, Netflix’s chief content officer, told Vulture in 2018, “It’s an art of the business, of any subscription business, and really it’s about providing enough value to the consumer that they see it as a good value relative to usage and what it costs,” Sarandos said. “If they’re enjoying hours and hours of programming and a lot of shows, and we’re meeting the need, they’ll think it’s of great value. And if they don’t, they won’t. So it’s figuring out the right balance for each user.”
2. The Price Hike Has Been Rolling Out to Some Users Over the Past Few Months Based on Billing Cycles & the Announcement of the Increase Caused the Company’s Stock to Rise
Netflix announced in January that it would be rolling out its price increase based on billing cycles, but did not specify when the increase would take place for all users. In its April 3 email, the company confirmed that all subscribers would be on the new plans starting in May. Some users have already seen the increase and any user that joined the service after the January announcement started at the new rate.
The January announcement paid off immediately for Netflix, as the company saw its stock rise. “Netflix is raising its prices again, and the news sent the company’s stock up 6.5 percent Tuesday,” CNBC reported in January. “Last quarter, the company reported domestic subscriber growth of 10.7 percent year over year, totaling 58 million U.S. subscribers. It counts more than 78 million subscribers outside the U.S. Separately Tuesday, analysts at Goldman Sachs projected a strong earnings update from Netflix when it reports fourth-quarter results on Thursday. The firm is projecting a 20 percent upside for the company’s stock.”
On April 3, Netflix’s stock was trading at $369.60, up 1.88 percent.
3. Netflix Faced Some Backlash From Users on Social Media After Announcing the Price Increase
Netflix did receive some backlash on social media to its email announcing the new subscription prices, but many users seem to have accepted the rate increase as worthwhile. Others took issue with the header on Netflix’s email, which said “More of what you like,” a reference to the investment in original content.
A research firm, Magid, found that consumers were willing to pay an average of $38 total per month on streaming services and would be willing to have up to six different services.
“That total still equals less than what people are paying for traditional cable or satellite packages,” Jill Rosengard Hill, an executive vice president at Magid, told CNN. “Today, millennials who subscribe to more streaming services are used to actively managing their subscriptions and share of wallet that goes to video content. Netflix is the 800 lbs. gorilla in the streaming world. They are releasing new shows weekly at an alarming rate to acquire and retain subscribers, forcing other players to focus on aggressively marketing and differentiating their own offerings.”
4. The Company’s Streaming Service Prices Have Increased 3 Times Since Its First Rate Hike in 2014
This price increase is the fourth time that Netflix has hiked its rates for its streaming subscription services since they were introduced. The 13 percent to 18 percent increase is the biggest jump in prices in company history.
The basic plan, which allows for streaming on just one screen and not in HD quality, started at $7.99 and will be increasing $1 dollar for the first time ever. The standard plan, allowing HD video and usage of the service on two screens at one time, was increased to $8.99 in 2014, to $9.99 in 2015, to $10.99 in 2017 and now to $12.99.
The premium service, which includes UHD quality and allows streaming on four devices at one time, was introduced in 2013 at $11.99, went up to $13.99 in 2017 and will now be $15.99 per month.
5. The Company Is Facing Increased Competition, Including New Streaming Services Featuring Original Content From Disney, NBCUniversal, WarnerMedia & Apple
Netflix’s price increase comes as it faces increased competition. Its long-standing competitor, Hulu, continues to add original content, as does Amazon Prime, while several other companies have announced new streaming services that will debut soon, including Disney, NBCUniversal, WarnerMedia and Apple. Along with the new original content those services will provide, some content previously accessible on Netflix will be moved to the new services. For example, Disney will take Marvel, Star Wars, and other Disney-owned content off of Netflix for its new service, Disney+.
“On the surface, it does seem to be a bit of jeopardy to increase prices when the competitive services are coming,” Tony Gunnarsson, a principal analyst at Ovum focused on the streaming media business, told Wired. “The key thing with Netflix is that they have become a must-have, essential service. For consumers, it’s the first streaming service you subscribe to and then you add others after that.”