Stock analysis/investing

Why Netflix Raised The Price of It’s U.S. Subscription And Is It A Mistake?

by Chris Lee Susanto 

31 October 2020

Netflix currently has more than 65 million U.S. subscribers and about 195 million paid subscribers worldwide – a 23% increase compared to a year earlier.

Their last hike for the U.S. price was in January 2019.

Fees Raised for HD, 4K Tiers, Not Entry Level

The second time in around two years, Netflix had raised its prices for its main U.S. subscription. The plan with HD viewing is increased to $13.99 a month—an increase of about $1 for the HD viewing.

The 4K tiers of service increased to $17.99. A $2 increase.

The entry-level price stays the same at $8.99.

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Reason For The Increase

“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.” – Netflix

Netflix says that they update their price to continue to offer more variety of TV shows and films.

They said that the range of plans still offers people selection for a price that works best for their budget.

It is not a surprise that Netflix is increasing the monthly subscription in the U.S. After all, their business model is about making as good content as possible so that it will attract more subscribers and at the same time, keep the existing ones. And contents require cash.

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Is Raising Price A Mistake?

In the past, Netflix’s range of shows is not as much as today.

Currently, Netflix seems to be more confident that raising prices will not hamper growth too much, given the larger amount of original shows it produces.

netflix raise price

Image source: Bloomberg

And based on past data, despite an increase in prices in the past, their subscriber count has steadily increased.

However, with an added increase in Disney+ competition, there will likely be some churn – albeit likely not much – because they still keep the entry-level price the same for people with a lower budget in the U.S.

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In Conclusion

Unlike Facebook, Netflix content is not user-generated.

Netflix business model requires them to continue funding more content to compete against competitors such as Disney+, Apple TV+, Peacock, and HBO Max.

Disney+, by the way, has a much cheaper plan that is even lower than Netflix, starting at $6.99 a month.

In a business like Netflix, having superior content is one way to keep the user staying on board.

That is why the only logical way for Netflix to keep competing is via a price increase.

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Chris Lee Susanto

Chris Lee Susanto

Founder of the value investing blog Re-ThinkWealth.com (if you type “value investing blog” in Google, his blog is likely the first one). Being a full-time investor himself, Chris knows that he did not beat the S&P 500 return so far (as of the time of this writing) by listening to stock tips. So, when he teaches, he also doesn’t believe in giving stock tips as it is not sustainable for you in the long run. He will teach you how to make your own intelligent decisions with his 4M1S framework. Feel free to also join his free investment telegram channel here.

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