Netflix Could Hike Fees in U.S., Analysts Say, Even as It Tests Cheaper Plans Overseas
Netflix is gearing up to kick the tires on cheaper pricing plans in emerging markets outside the U.S. But at the same time, some on Wall Street think it has a growing amount of pricing power that could let it hike fees for American users.
In a research note Monday, Piper Jaffray analysts said Netflix is positioned to raise fees for its streaming service on a regular basis. That hypothesis is based on a survey conducted by the firm of about 1,100 U.S. Netflix users that found 71% said they felt content on the service has improved.
“We believe, as long as the vast majority of subscribers perceive that the service is improving, Netflix will be positioned to periodically increase price,” the analyst team led by Michael Olson wrote in a note. They added that if Netflix could get an additional boost if it lands Oscar nominations for its slate of upcoming originals films including Alfonso Cuarón’s “Roma,” the Coen Brothers’ “The Ballad of Buster Scruggs” and Susanne Bier’s “Bird Box.”
Netflix hasn’t signaled plans to alter any pricing right now. But execs have left the door open for future price hikes.
On the company’s Oct. 6 earnings interview discussing Q3 results, chief product officer Greg Peters said that as long at the company continues to exceed customers’ expectations, “we 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.”
Netflix most recently raised prices in most markets in the fourth quarter of 2017. In the U.S, it raised the two-stream HD tier to $10.99 per month (up from the previous $9.99) and the Premium plan from $11.99 to $13.99 per month. The single-stream, non-HD Basic plan remained unchanged at $7.99.
Meanwhile, as it looks to build up its user base internationally, Netflix may actually reduce pricing in some areas. Netflix beat expectations by adding 7 million streaming subs for the third quarter, ending the period with 137.1 million customers worldwide (58.4 in the U.S.; 78.6 million internationally).
Netflix’s Peters, also during the Q3 interview, said the company plans to experiment with pricing models that are “below our current lowest tier,” including in India and other countries.
“[W]e’ll experiment with other pricing models, not only for India, but around the world that allow us to sort of broaden access by providing a pricing tier that sits below our current lowest tier and we’ll see how that does in terms of being able to accelerate our growth and get more access,” Peters said.
CEO Reed Hastings, in a recent interview with Bloomberg, reiterated Netflix’s plans to test lower-priced tiers but he didn’t provide any details about what that might look like or where and when it could be rolled out.
Hastings told Reuters in an interview that right now, Netflix isn’t planning to introduce cheaper plans in India. Netflix subscriptions in India start at 500 rupees a month ($6.90) for the entry-level, single-stream Basic plan; 650 rupees monthly ($9) for the two-HD-stream standard plan; and 800 rupees monthly ($11) for the Premium tier.
Netflix has run limited tests of different pricing plans before. This summer, the company tested out a high-end streaming plan dubbed “Ultra” in select markets priced at around $16.99 per month. One version offered four Ultra HD 4K streams while dropping the existing $13.99 Premium plan from four to two UHD streams. The second version kept both Premium and Ultra plans at four Ultra HD streams but only Ultra customers would have access to high dynamic range (HDR) content, which provides more vibrant color reproduction and higher contrast.
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