Netflix announced Friday that it has raised the prices of all of its subscription plans, with the higher-quality plan now costing users $19.99 per month. The Basic plan, which only allows standard definition video, is now $9.99. Netflix says its most popular plan, which allows 1080p HD video recording, isn’t $15.49.
“We’re updating our pricing so we can continue to offer a variety of high-quality entertainment options,” a Netflix spokesperson said. To be clear, it appears that “update” is now a euphemism for “increase”, at least when it comes to pricing. And Netflix’s reason for raising prices is pretty simple – it should be.
The company’s stock price rose three percent after the announcement, which is really all you need to know about why Netflix keeps raising the price of a service that is essentially similar to what it did a decade ago. It should make the shareholders happy.
This has become more difficult as subscriber growth has slowed. Of course, there comes a point when it’s the biggest streaming service, that it’s hard to find people who aren’t already subscribed. You’d think that would count as a win, except that shareholders want to see growth, even when you’re already as big as you’d reasonably get.
This is just the law of large numbers. If you already have 214 million subscribers, which Netflix said it got in October 2021, it’s very difficult to continue growing at the same rate as, say, 50 million or even 100 million.
To be clear, not everyone is in common. Then again, a large portion of the people who don’t pay for Netflix are streaming a Squid game anyway, using someone else’s account – usually a parent, roommate, or ex-girlfriend. Some estimates suggest that as many as a third of accounts share a password. This means that there are as many as 70 million people who use Netflix without paying.
Instead, Netflix decided that the easiest path to increasing revenue was to simply charge more money to its existing customers for the same service. However, in the end, there will be a point where people will not continue to pay whatever amount Netflix decides to charge. I have no idea how much it is, but I’m honestly surprised we haven’t actually hit it. Netflix has now raised the price of its highest plan by $8.00 in the past five years.
The obvious question is whether Netflix offers additional value for the higher price. I think this depends on how you define value. The company is not adding any new features to its plans. At the same time, it continues to invest as much, if not more, than its competitors in new content. However, adding new movies and TV shows seems like it should be a given. It’s not really a new feature.
Most of the biggest Netflix competitors charge a lot less than they do. Sure, Apple TV+ doesn’t have nearly as much library as Netflix, but Apple doesn’t charge you extra for watching 4K movies. Apple also spends billions to build its content library, even though it only charges $4.99 per month. That’s half of the cheapest Netflix plan.
I suppose Netflix’s strategy is that it plans to keep raising prices until net growth turns negative, which means more people are abandoning the streaming service than subscribing. The company clearly has a problem and there is no real solution in sight. It is the largest streaming service, with the largest library of content, with very few options for growth.
Netflix can only turn the temperature up on the proverbial frog (who will be its subscribers), long before some of them decide they won’t be on for much longer. Would anyone pay $20 per month for a mid-tier Netflix plan? At this rate, there are only a few years left to discover it.
Netflix says the price change is effective immediately for new customers and will be implemented in phases for existing customers. The company says it will notify existing customers at least 30 days in advance of charging them the new price.