On Friday, Netflix announced it has raised prices on all of its subscription plans, with the highest-quality plan now costing users $19.99 per month. The basic plan, which only allows for standard definition video, is now $9.99. Netflix says its most popular plan, which allows for 1080p HD video, is not $15.49.
“We’re updating our prices so that we can continue to offer a wide variety of quality entertainment options,” a Netflix spokesperson said. To be clear, “updating” is apparently now a euphemism for “raising,” at least when it comes to prices. And, Netflix’s reason for raising prices is pretty simple–it has to.
The company’s share price rose three percent after the announcement, which is really all you need to know about why Netflix keeps upping the price of a service that is essentially the same as it has been for a decade. It has to make shareholders happy.
That has gotten harder as subscriber growth has slowed. Of course, there comes a point when you’re the largest streaming service, that it’s difficult to find people who aren’t already subscribers. You’d think that would be considered a win, except that shareholders want to see growth, even when you’re already as big as you’re reasonably going to get.
That’s just the law of large numbers. If you already have 214 million subscribers, which Netflix said it had in October 2021, it’s very hard to continue growing at the same rate as when it had, say, 50 million, or even 100 million.
To be clear, not everyone is a subscriber. Then again, a large portion of people who don’t pay for Netflix is streaming Squid Game anyway, using someone else’s account–usually a parent, or roommate, or former girlfriend. Some estimates suggest as many as a third of accounts share a password. That means there are as many as 70 million people who are using Netflix without paying.
Instead, Netflix has decided the easier path to growing revenue is to simply charge its existing customers more money for the same service. Eventually, however, there will be a point at which people won’t continue to pay whatever Netflix decides to charge. I have no idea what that amount is, but I’m honestly a big surprised we haven’t reached it already. Netflix has now raised the price of its top plan by $8.00 in the past five years.
The obvious question is whether Netflix is offering additional value for the higher price. I guess that depends on how you define value. The company isn’t adding any new features to its plans. At the same time, it continues to invest as much, if not more, than its competitors on new content. Still, adding new movies and television shows feels like it should be a given. It’s not really a new feature.
Most of Netflix’s biggest competitors charge far less than it does. Sure, Apple TV+ doesn’t have nearly the library as Netflix, but Apple doesn’t charge you more to watch movies in 4K. Apple is also spending billions to build its own content library, despite only charging $4.99 per month. That’s half of Netflix’s cheapest plan.
I suppose Netflix’s strategy is that it plans to continue raising prices until net growth becomes negative, meaning that more people are dropping the streaming service than signing up. Clearly, the company has a problem with no real solution in sight. It’s the biggest streaming service, with the largest content library, with very few options for growth.
Netflix can only turn up the heat on the proverbial frog (that would be its subscribers), for so long before some of them decide they’re not sticking around any longer. Is anyone going to pay $20 per month for Netflix’s mid-tier plan? At this rate, we’re only a few years from finding out.
Netflix says the change in pricing is effective immediately for new customers and will be phased in for existing customers. The company says it will notify current customers at least 30 days before they are charged the new price.
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