★ Netflix to Raise Prices For Two of Three Tiers of Service (Oct 5, 2017)
Netflix has confirmed that it’s raising prices for two of its three tiers of service in the US, starting this month for new subscribers and in November for existing subs. Subscribers to the $8 bottom tier won’t see an increase, but the most popular middle tier will go from $10 to $11 per month, while the premium tier will see a $2 bump from $11.99 to $13.99. I’m a bit surprised by this increase coming so soon after the company finished implementing its last price increase last year. The company’s current average revenue per paid US streaming subscriber is right around $10, and went up $2 exactly in keeping with the last price increase, suggesting that the base is dominated by that middle tier and that subscribers to the other two plans largely balance each other out. With the bigger bump to the premium tier, it’ll be interesting if we see average revenue per user rise more this time around, especially as 4K adoption increases.
I did some analysis for Variety in May last year on the last price increase and reached the conclusion that costs per subscriber were actually falling and price increases were largely about continuing to drive US margins up. That increase caused lower subscriber growth for a few quarters, though the impact was more closely tied to the timing of the announcement than the implementation for individual existing customers, which validates Netflix’s decision to push out the increase quickly this time rather than staggering it. Since I did that analysis, however, Netflix’s domestic streaming cost of revenue per subscriber has risen, which means this increase is more honestly about covering rising costs than the last one, though cost haven’t risen by nearly as much as prices will go up – monthly cost per sub has gone up by about 23 cents over the past year, so less than a quarter of the $1 price increase on the most popular tier. I wouldn’t expect as large an increase in churn this time around given that it’s a smaller increase in price, but it does mean that Q4 subscriber growth numbers in the US will take a hit and be a little lower than they would otherwise have been.
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