Netflix continues to bet that raising prices to support its ongoing investment in content will pay off over the long run in maintaining U.S. subscribers and accelerating growth in international markets.
The giant SVOD upped its U.S. prices for new subscribers to two of its plans as of October 29, and will implement those hikes for existing domestic subscribers over the next few months, with prior notification, based on their billing cycles.
But Netflix is clearly taking the country’s bifurcated economic situation into account.
The price of its least expensive, Basic plan — offering one, non-HD stream — will remain at $8.99 per month.
The price of its most popular, mid-priced, Standard plan — offering two HD streams — is rising $1 or 8%, from $12.99 to $13.99.
The highest increase has been reserved for those who can afford the Premium plan, which offers four streams and includes 4K Ultra HD content. That price has been hiked by $2 or 12.5%, from $15.99 to $17.99.
“We understand people have more entertainment choices than ever and we’re committed to delivering an even better experience for our members,” Netflix said in a statement. “We’re updating our prices so that we can continue to offer more variety of TV shows and films — in addition to our great fall lineup. As always we offer a range of plans so that people can pick a price that works best for their budget.”
When the new price increases are added to those implemented in May 2019, the Standard plan’s price has risen by $3 and the Premium plan’s by $4, in the past 15 months.
Of the major competitive streaming services that have launched in the past year, including Disney+, Apple TV+, Peacock and HBO Max, only HBO Max, at $14.99, charges more than Netflix’s Standard plan fee.
After pandemic-juiced overall subscriber gains of nearly 26 million in this year’s first half, Netflix missed its own projected additions target of 2.5 million in Q3 (analysts had expected around 3.6 million), instead adding 2.2 million.
U.S. and Canadian subscribers inched up 180,000 in Q3, to 73.1 million (out of 195 million worldwide), although analysts were expecting flat results. Netflix has for some time now acknowledged that, going forward, it will be driving growth internationally as domestic growth slows.
Investors — perhaps recognizing the importance of margins, as well as subscriber growth — welcomed the price-hike news, driving Netflix’s stock up 5% following the news on Thursday.
Netflix's average revenue per user (ARPU) for U.S. and Canadian subscribers was $13.40 in Q3, up 2% from a year ago — and the price increases should increase domestic ARPU and revenue going forward, helping to offset higher costs from a ramp-up of content production (assuming COVID trends allow).
Netflix slightly exceeded revenue expectations in Q3, with $6.44 billion vs. $6.38 billion expected by analysts, but fell short on earnings per share ($1.74 versus $2.14 expected by analysts).
But the company’s cash flow — a much-watched indicator that had been negative since 2014 — was positive for the third consecutive quarter, and at positive $2.2 billion for the first nine months.
For Q4, the company is forecasting adding 6 million total subscriptions — versus 8.8 million added in Q4 2019 — reflecting continuing worldwide pandemic-driven economic uncertainty; and slightly negative cash flow. But it raised its full-year cash flow projection to positive $2 billion, versus its previous breakeven to slightly positive projection.
For 2021, Netflix forecast free cash flow at negative $1 billion to breakeven.
In mid 2019, after a series of flops as well as hits, then content chief Ted Sarandos — now co-CEO with Reed Hastings — reportedly laid down a new approach to original content production greenlighting decisions that puts greater emphasis on cost-effectiveness, in the form of heavier weight on estimates of numbers of new viewers likely to be brought in by a proposed movie or series.