Netflix is raising prices.
Given how much it has been spending on content, the move isn’t surprising, but the latest jump — anywhere from 13 to 18 percent depending on the subscription plan — is the biggest increase since Netflix started its streaming service a dozen years ago. That’s going to hurt some consumers.
…Netflix’s most popular plan, which gives a customer two simultaneous streams, will get the largest increase, to $13 a month from $11. Still, it’s cheaper than HBO, whose streaming service costs about $15 a month. The $8 a month plan will now cost $9, and the high-end version, which allows for four simultaneous streams, jumps to $16 from $14. (The new prices took effect Tuesday for new subscribers. For existing customers, the increases will start in about three months.)
Netflix, which will report quarterly earnings on Thursday, has committed to spending over $18.6 billion on content. That’s for shows and films that won’t appear on the service for months, whether it’s the next season of “Stranger Things” or the forthcoming lineup from the super producer Shonda Rhimes.
Multiply that by the hundreds of hours of original content that Netflix produces every year, and the cash starts to bleed out. The company had negative free cash flow of $2 billion last year. It expects that figure to rise to about $3 billion this year and about the same next year.
Spending big on content while keeping prices modest has helped Netflix expand its customer base, about 58 million in the United States and 130 million worldwide. Those figures will be updated Thursday as part of its earnings report.
The stakes for owning content have risen. Big-pocketed players like the Walt Disney Company, AT&T and NBCUniversal plan to compete with Netflix with streaming services of their own. Both Disney and AT&T’s WarnerMedia plan to unveil their products by the end of the year, and NBCUniversal, owned by Comcast, is working on an ad-supported model streaming service that it plans to make available in early 2020.
Not to be left out, Amazon offers a streaming service as part of its Prime shipping program for $13 a month, or $120 a year. Hulu sells an ad-free service for $12 per month. (Disney will take control of Hulu once it completes its acquisition of the bulk of Rupert Murdoch’s Fox business, sometime around the middle of the year.)
There is also Apple, which has spent well over $1 billion to create original TV shows. The boom in streaming has increased costs throughout Hollywood, where competition for talent and property has intensified.
As Netflix’s chief executive, Reed Hastings, said in October: “There’s never been so much TV and movies being created around the world. So the game is on.”
PED Data Response
- Using your own knowledge of economics, and knowledge from the text, Evaluate if Netflix should raise its premium plan from $16 to $20.
