Bad News: Netflix May Be Looking at a Price Hike Next Year
When Netflix raises prices, it always takes a risk that some customers will cancel their subscriptions rather than pay the additional money. At the same time, the company takes advantage of the additional revenue from the higher prices.
Netflix has had a big year in 2020. The streaming service said on its most recent earnings call that it has added twenty-six million subscribers in the first half of the year, with customers stuck inside due to coronavirus lockdowns and big hits like Tiger King. More recently, the streaming service has dominated the weekly ratings released by Nielsen of the top streaming shows.
The company did say, in its second-quarter earnings call, that it was expecting less growth in the second half of the year than it posted in the second half of 2019, largely because there had been so much growth in the first half of this year.
Now, one analyst says Netflix could look at raise prices next year.
“After a change in language regarding pricing on the (second-quarter) call, we believe a potential hike is probable in the near to midterm,” Jefferies analyst Alex Giaimo said in a note published this week, one that was widely cited in the media. “In Q1, Netflix said that they were ‘not even thinking about price increases,’ while the Q2 language was more open-ended.”
“We have confidence that Netflix can raise prices in international markets given its deepening content library and outsized consumer value proposition,” the analyst added.
“When we look forward, I would say every country is in a different mode,” Greg Peters, Netflix’s chief operating officer, said on the company’s second-quarter call after he was asked by an analyst about the chance of price increases, per a Motley Fool transcript. “And so we’re going to sort of continue to assess a bunch of different factors over time. We’ll look at macro factors country by country. We’ll also look very closely on our specific metrics, and it’s metrics like engagement, like churn.”
According to a chart published by Recode, Netflix’s premium streaming plans, in the United States, started at $8 but rose to $12 in 2014, to $14 in 2017, and to $16 in 2019. The “basic” tier has risen much less, from $8 originally to $9 as of last year.
When the company raises prices, it always takes a risk that some customers will cancel their subscriptions rather than pay the additional money. At the same time, the company takes advantage of the additional revenue from the higher prices.
Earlier this month Netflix faced a backlash over “Cuties,” a French art film that the streaming service had acquired, which detractors claimed had presented underage girls dancing in a risqué manner.
There was a campaign to boycott the streaming service over the matter, but research firm 7Park found that the company’s churn rate spiked for a few days following the #CancelNetflix campaign, but had returned to their usual numbers by the following week. However, no official subscriber numbers have been released by the company.
Netflix is set to report those numbers, and more when they announce third-quarter earnings on October 20.
Stephen Silver, a technology writer for The National Interest, is a journalist, essayist and film critic, who is also a contributor to Philly Voice, Philadelphia Weekly, the Jewish Telegraphic Agency, Living Life Fearless, Backstage magazine, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. Follow him on Twitter at @StephenSilver.