Netflix raised prices within the U.S., Canada, and the U.K. at the top of 2020, and price hikes in other regions could rather be within the works, too. But Netflix has more opportunities to grow its subscriber base outside of the U.S., where it hasn't offered its service as long and won over the bulk of its addressable market.
Price increases are a crucial piece of Netflix's revenue growth within the U.S., but at $13.99 per month for its hottest plan, management may have stronger-than-usual cues from consumers that they are willing to pay more before it raises prices again.
Netflix's pricing strategy
Chief Operating Officer Greg Peters reminded investors how the corporate care price increases during Netflix's fourth-quarter earnings call. "We are trying to find signals and signs from our members that are telling us essentially that we've added more value," he said. "So you think that about engagement with the service and retention and churn characteristics, acquisition."
When Netflix sees a meaningful improvement in those numbers following its most up-to-date price hike, it'll return and lift prices again. But Netflix might want to concentrate on many other factors before it raises its prices again within the U.S. because it faces more competition from Disney (NYSE: DIS), AT&T (NYSE: T), and other media companies shifting content to streaming, it's going to want to watch the general streaming market to work out what consumers can absorb.
Here are three factors for Netflix and its investors to think about when assessing the potential for an additional price hike within the U.S.
1. Differentiation
Netflix can't consider the worth it offers consumers during a vacuum; it must consider the quantity useful it offers that buyers can't get anywhere else. With more competitors entering the market at lower cost points, savvy consumers could also be ready to replace content from one streaming service with an equivalent or similar content on another.
To that end, Netflix already offers tons of original and exclusive content. Thirty-nine percent of its TV catalog consists of original series, consistent with data from Reelgood. That's quite HBO Max, Disney+, and Hulu. Additionally, 83% of its content library is unavailable on the other streaming platform. Only Disney+ holds more exclusive rights as a percentage of its service.
Those numbers will only still climb for Netflix in 2021 because it continues to shift its content investments to originals. In its fourth-quarter letter to shareholders, the corporate said its 500 titles currently in post-production.
2. Competitor results
2021 could also be a chance for Netflix to pay close attention to how its competitors are performing. While management has historically tried to ignore what the competition was doing and specialize in its operations, competitors' results may provide additional insight into consumers' willingness to buy streaming content.
First, Disney will raise the worth of Disney+ and its three-service streaming bundle by $1 at the top of March. It'll also raise the worth in Europe by $2, but add additional content under the Star brand. With the sizable audience Disney has built for the service in only over a year, the worth hike could provide additional insights into how consumers answer a modest increase.
Second, HBO Max is debuting WarnerMedia's entire 2021 film slate with limited runs on the streaming service. Investors should concentrate on HBO Max activations and retail subscribers, also as any commentary on churn rates. that would provide insight into consumer willingness to pay a premium price for premium streaming content. HBO Max costs $14.99 per month, $1 quite Netflix's hottest plan.
It may seem counterintuitive to ascertain positive results for Netflix's competitors as a positive for Netflix, too. But considering the continued shift of your time spent watching video from live TV to on-demand streaming, there's room for multiple winners.
3. Overall willingness to buy streaming
Netflix already offers one of the foremost expensive subscription video on-demand services within the U.S. Its premium plan, which incorporates four simultaneous streams and 4K video, is $17.99 per month. albeit Netflix offers more originals and exclusives than its competitors, consumers won't be willing to pay just to access an enormous catalog of content.
After all, that is the idea behind cord-cutting. Consumers simply aren't willing to pay the premium price for access to premium content. Netflix may offer "incredible entertainment value" as Peters points out, but at some point, consumers simply won't be willing to pay the worth tag.
Still, at but $20 per month, it is a far cry from the worth of a typical cable bundle. And as cord-cutting accelerates, there's more room within the allow streaming. Of course, the goal of cord-cutting is to save lots of money, so Netflix still has got to keep its price attractive while providing enough content to convince people they will cancel their cable subscriptions.
It seems very likely Netflix will raise prices in its largest and most precious market again at some point in the future. Positive signs from the three areas mentioned above mean the media company could raise prices sooner instead of later. Overall, a $1 per month price hike within the U.S. and Canada would translate into about $900 million in additional revenue, which can mostly go straight to Netflix's bottom line and free income.
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