Shares of Netflix surged more than 6% Tuesday after the top video streaming service announced its largest-ever price increase as it looks to offset the billions it is spending on content as competition for viewers intensifies.
New subscribers will be hit with the double-digit price increases immediately while the price hikes will be phased in for existing members over the next few months, according to the company. Customers in Latin America and the Caribbean who pay Netflix in U.S. dollars will also face higher prices while prices in other major markets such as Mexico and Brazil remain unchanged.
The price for the company’s basic plan one-stream plan is rising 12.5%, from $7.99 per month to $8.99. This is the first price hike for the basic plan since 2010.
Netflix’s most popular plan, which allows users to stream to two devices at the same time, will rise 18%, to $12.99 from $10.99. The service’s premium four-stream plan will now cost $15.99, a 14% increase from $13.99.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” according to a company spokesperson.
Shares of Netflix recently traded hands at $354.11. They have surged more than 32% since the start of the year.
The Los Gatos, Calif.-based company, which is due to report earnings on Thursday, reportedly plans to spend $12 billion on original content in 2019, more than double from two years ago, according to the Wall Street Journal. Netflix has struck deals with some of the biggest names in Hollywood including Grey’s Anatomy Creator Shonda Rhimes and comedians Jerry Seinfeld and Adam Sandler. Rivals including Amazon Prime Video are also ratcheting up their spending on shows.
To be sure, Netflix’s estimated 125 million subscribers likely will take the price hikes in stride as they have in the past. The streaming market, though, is getting increasingly crowded. NBCUniversal announced yesterday that it was planning to launch a service in 2020. AT&T’s WarnerMedia and Walt Disney plan to debut their offerings this year.
Disney will debut its family-friendly streaming service called Disney + later and plans to position Hulu as a premium service aimed at adults once it assumes control of the service once the 21st Century Fox deal closes.
Content providers are also increasingly interested in keeping their content for their own services and are charging big money for others to use it. AT&T’s WarnerMedia, recently licensed the sitcom Friends to Netflix for a reported $100 million for 2019, a sharp increase from $30 million it previously received. The corporate parent of Mickey Mouse is planning to yank its content from Netflix.
Though the pay-TV market often is presented as a zero-sum game where consumers either subscribe to cable or satellite services or stream videos, the reality is more nuanced. Data from GfK shows that two-thirds of cable households subscribe to at least one streaming service. Rising prices for Netflix might force consumers to cut back on spending on other services.
“By raising their monthly fee, Netflix has just taken a larger share of the total notional spend, arguably putting greater pressure on others to claim and hold onto their share of what remains. It’s possible that the ripple effect of Netflix increasing its fees will be that some consumers end their subscriptions to other services,” said Mike Bloxham, SVP, Global Media and Entertainment at Magid, in a statement. “While some may see this as an indication that there is a tolerance for higher prices in the streaming space, the reality is that the average user has a mental limit on what they are prepared to spend in total for the services they will subscribe to. Our research shows that tolerance is around $38/month for all services.”