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Why Netflix Increased its Streaming Service Pricing

  • Nadine Ghiran - SUBTA
  • Jan 21, 2022
  • 6 minute read

Netflix increased its prices across all plans in the United States and Canada last week to remain the leader of the increasingly competitive subscription video on demand (SVOD) market.

“We understand people have more entertainment choices than ever and we’re committed to delivering an even better experience for our members,” a Netflix spokesperson told Reuters. “We’re updating our prices so that we can continue to offer a wide variety of quality entertainment options.” 

Read on to learn more about Netflix’s streaming service pricing decision, where the company stands in comparison to other services in the SVOD industry, and the overall value of streaming platforms.

Netflix’s Streaming Service Pricing Makes Room for Growth

Netflix’s prices increased by $1-$2 over the weekend for U.S. and Canadian consumers for the first time since October 2020:

  • Basic plan: $8.99 to $9.99
  • Standard plan: $13.99 to $15.49
  • Premium plan: $17.99 to $19.99

The increased prices will apply to new signups while existing subscribers have a 30-day grace period before prices go up.

The company’s stock also experienced a big bump after the news and closed at $525.69 per share, according to Nasdaq

Ultimately, Netflix is using its streaming service pricing to continue expanding on its content portfolio and provide subscribers with value-packed options.

In 2021, Netflix released new seasons for four original titles: “You,” “Emily in Paris,” “The Witcher,” and “Cobra Kai” all accounted for more than 1.5 billion hours viewed combined, according to the company’s Q4 2021 Shareholder Letter.

Netflix also invested in two big-budget feature films, “Red Notice” and “Don’t Look Up.” The titles became the top-two most-watched movies ever on the streaming service’s platform, Netflix noted in the Q4 Shareholder Letter.

While Netflix officials state that their retention rates are high and churn rates are low, the company has yet to reach pre-Covid acquisition numbers. The streaming service forecasted 8.5 million new subscribers in Q4 2021 but fell short of its goal by 200,000, ending the year with 222 million total subscribers.

In the U.S. and Canada specifically, Netflix added just over 1 million subscribers, “marking our strongest quarter of member growth in this region since the early days of COVID-19 in 2020.”

Competitive SVOD Market

Netflix is one of the big five streaming services in the industry (Netflix, HBO Max, Hulu, Amazon and Disney+), according to Jon Giegengack from Hub Entertainment Research, and isn’t the only one that increased its prices since launch.

Disney+ announced a price hike for the first time in March of 2021 to budget for its growing content library and add value to its subscribers — nearly 120 million of them.

HBO Max is also a competitor in the SVOD market with its quickly rising subscriber count. While Disney+ is just over 100 million subscribers away from reaching Netflix, HBO and HBO Max are catching up with nearly 70 million subscribers combined — the company’s 2021 year-end goal.

The big five streaming services are cutting into Netflix’s lead in the market, according to Giegengack.

Twenty percent of viewers turn to Netflix when seeking entertainment, but a close 15% use one of the other services, according to Hub Entertainment Research, which implies the SVOD market is as competitive as it’s ever been.

The Value of Streaming Services 

Last year, consumers subscribed to streaming services primarily to access exclusive content, according to data from Giegengack’s session at SubSummit 2021. More than half of viewers choose a streaming subscription based solely on the quality of products it provides.

Additionally, nearly 90% of consumers are more likely to subscribe to a service that offers original content, according to Giegengack. Netflix, Disney+, and HBO Max are already capitalizing on these trends.

Starting at $9.99, Netflix provides exclusive content with its subscription through “Netflix Originals,” or content that is found only on Netflix’s platform. 

For $7.99/month, or $79.99/year, Disney+ does the same through series like “WandaVision,” “The Falcon and The Winter Soldier,” and “Loki.” It also offers a “Premier Access” feature that enables subscribers to watch movies — like “Cruella” and “Black Widow” — that are released in theaters at the same time for an added fee of $29.99.

Lastly, HBO Max does not charge for movie releases that are also in theaters — like “The Matrix Resurrections” — and has its own productions that are streamed exclusively on its platform for $7.99/month with ads and $11.99/month without ads.

 

These three services are leveraging creativity and unique content to provide exclusivity in their respective subscription offering, and by default, develop loyal subscriber bases. 

Making subscribers feel like they’re getting their money’s worth is a critical piece in a successful subscription business. Including exclusive benefits in your subscription offering increases the perceived value of your brand, according to Bold Commerce. 

Twenty-five percent of subscriptions that offer extra benefits are growing 50% or more month-to-month compared to brands that offer no additional benefits.

For example, subscription box brands could offer subscribers free shipping or early access to exclusive products. Streaming services, like Netflix, have the capacity to include exclusive visual content to increase the value of their subscriptions. But exclusivity comes at a cost.

In Netflix’s case, increasing the streaming service pricing is a necessity in order to stay on top of the surrounding competition.

“Consumers have always had many choices when it comes to their entertainment time – competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” the company said in the Q4 Shareholder Letter. “While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched.”

Netflix expects to acquire 2.5 million subscribers in Q1 2022 compared to its 4 million goal from last year and will also expand its gaming portfolio that launched in November 2021.

Key Takeaways:

  • Netflix increased its streaming serving pricing to stay on top of its content production and in the competitive SVOD market.
  • The company’s stock increased as well after Reuters released the news of the price increase. 
  • Providing exclusive value to your subscribers will sometimes require you to increase your prices. As long as the price increase does not exceed the value perceived, your churn rates should not go up.

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