Netflix is flexing its pricing-power muscle to kick off 2019 — hiking fees for all streaming-video plans for customers in the U.S.
Netflix’s most popular plan, the Standard tier that offers two HD streams, is increasing 18%, from $10.99 to $12.99 per month. The Premium plan, which provides up to four Ultra HD streams, is increasing from $13.99 to $15.99 per month (up 14.3%). In addition, the company for the first time is hiking its Basic plan, which offers a single non-HD stream, from $7.99 to $8.99 per month (+12.5%).
The new prices, which are the biggest fee hikes in Netflix’s history, will apply to all new Netflix subscribers in the U.S. immediately. Existing subscribers will be moved to the new pricing plans “over the next few months,” according to the company. Netflix’s price increases also will extend to about 40 countries in Latin America where it bills in U.S. dollars, including Uruguay, Barbados, and Belize. However, the rate hikes will not take effect (for now) in the region’s biggest markets, Mexico and Brazil.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” a company spokeswoman said in a statement.
Netflix shares rose up as much as 6.8% in morning trading Tuesday on news of the price increases, with investors bullish on the evidence of its growing market clout.
The company is looking to boost top-line revenue to offset its ballooning content costs, which were projected to hit $13 billion on a gross basis in 2018. To fund its content-spending binge, Netflix has raised billions in new debt: It reported $8.34 billion in long-term debt as of Sept. 30, up from $6.50 billion at the end of 2017. It’s also continuing to burn cash, and most recently projected negative cash flow of more than $3 billion for 2018 (versus negative free cash flow of $2 billion a year prior).
Netflix last raised rates in the fourth quarter of 2017 — two years after its previous hike — and faced minimal cancellations and no slowdown in net subscriber additions. It remains to be seen how the new price increases affect subscriber growth heading into 2019. Netflix is scheduled to report Q4 2018 results on Thursday, Jan. 17.
According to Netflix, existing members will be notified by email and within the Netflix app 30 days before the new prices are applied to their accounts. The exact timing will depend on a specific member’s billing cycle.
Netflix had 58.4 million U.S. customers as of the end the third quarter of 2018, with a worldwide total of 137.1 million streaming members.
Wall Street analysts have believed Netflix has demonstrable leeway to safely raise fees without the risk of significant backlash. Greg Peters, the company’s chief product officer, said on Netflix’s quarterly investor interview last October that “we earn the right to increase price a bit” if the company keeps delivering on customer expectations.
“[W]e earn the right to increase price a bit and then we take that new revenue, invested back into the model and that sort of continuous positive cycle we get to keep going, and we foresee that that will keep going for many years in the future,” Peters said.
The boost in revenue from the price increases could help “ease concerns” for investors about Netflix’s growing free-cash-flow deficit, CFRA Research analyst Tuna Amobi wrote in a research note reiterating a “buy” rating on the stock. “We anticipate a relatively seamless implementation of the latest price hike, given [Netflix’s] significantly expanded content offerings relative to its competitors’ pricing,” he wrote.
At $12.99 per month, Netflix’s Standard plan will be more than Hulu’s ad-free option (currently $11.99) and Showtime’s streaming service ($10.99) but still less than HBO Now ($14.99). More competition is looming: Later this year, Disney plans to bow the “Disney+” service and WarnerMedia is plotting a movie-driven subscription streaming offering, but pricing for those hasn’t been announced.