Netflix is introducing price hikes for its US subscribers today, increasing its standard plan to $14 a month and its premium tier to $18 a month.
The new pricing for the standard plan is a $1 price increase (from $13 a month), while the new premium tier cost is a $2 increase (from $16 a month). New subscribers will have to pay the updated monthly fees, while current subscribers will see the new prices over the next few weeks as they roll out with customer’s billing cycles.
Industry insiders have long anticipated another round of price hikes at Netflix, which last increased subscription fees in the United States in January 2019. Recently, Netflix increased the cost of some plans in Canada. Netflix rolls out price changes on a country-by-country basis and the change “in the US does not influence or indicate a global price change,” a Netflix spokesperson told The Verge.
The price hikes also arrive at a time when people have more options for entertainment than ever before — especially in the United States. A few years ago, Netflix’s biggest competition in the streaming space was Hulu, and the company vied for people’s attention being split playing video games, watching YouTube, and sleeping. Now, the US alone has HBO Max, Disney Plus, Peacock, TikTok, YouTube, Twitch, and Fortnite. Oh, and sleep is still a factor. Netflix is aware of this. Prices are being updated “so that we can continue to offer more variety of TV shows and films,” a spokesperson told The Verge.
“As always we offer a range of plans so that people can pick a price that works best for their budget,” the spokesperson added.
The price hikes also come as Netflix is looking to invest more heavily into its content slate and product features. Netflix has increased its annual content budget every single year over the last seven years, spending a once estimated $18.5 billion in 2020 alone, though that may have changed this year due to the pandemic. Increased competition means Netflix needs to continuously step up its game to ensure it has both quality content and plenty of it, while also working to better the actual platform. That costs money, and price hikes come as a result.
Questions about price hikes came up during Netflix’s most recent earnings call this month. Greg Peters, Netflix’s chief operating officer and chief product officer, said that as the company invests more into both content and tech developments, they’ll “occasionally go back and ask [customers] to pay a little bit more to keep that virtuous cycle of investment and value creation going.” Although Netflix is not influenced by competitor pricing, according to a person familiar with the matter, its new standard price is just $1 less than HBO Max’s $15 a month charge — a fee that many analysts claimed was too high for consumers.
At the time, analyst Ross Benes, who covers Netflix for eMarketer, told The Verge that Netflix is still underpriced. He added that people get “a lot of value for not a whole lot of money.” It’s because of all these different factors, and with Netflix becoming an even more central streaming service in people’s lives during the pandemic, that Netflix could ask for an extra dollar a month and people would pay.
“Some people might cancel, but I bet it would pay off for them,” Benes added.
Netflix executives like co-CEO Reed Hastings have also made peace with losing some customers — something the industry refers to as churn. Hastings told analysts during the company’s second quarter earnings call in July that people might leave Netflix from time to time to subscribe to other streamers. The goal, however, was to “have so many hits that you know when you come to Netflix you can just go from hit to hit to hit and never have to think about any of those other services.” Creating that constant series of hits that convinces people to sign up and stay gets expensive — fast — and that’s in part where price hikes come in.