Why Price Hikes Are Inevitable for Netflix Despite Recent Pledge; FAST Tier Could Be Crucial
When the news came out that Netflix had grown to 238.39 million subscribers in the second quarter of 2023, there was understandably plenty of attention paid to its customer increases. But Netflix’s actual earnings during the quarter were not as robust as some analysts were expecting, and any sign of weakness from the world’s largest streaming service leads to anxiety in the marketplace about the future prospects of streaming in general.
That’s why Puck News’s Julia Alexander — who is also Director of Strategy at Parrot Analytics — believes that price increases are in Netflix’s future, though they may not be immediate. Netflix CFO Spencer Neumann stated explicitly during the company's earnings call earlier this month that the company would not raise subscription costs for at least 12 months.
“We’re now more than a year out from any price adjustments in our big revenue countries,” Neumann said. “We largely pause them during paid sharing rollout and so that’s to be expected. For ads, that new revenue stream, we’ve expected a gradual revenue build, and so that’s not expected to be a big contributor this year so continues to be on target.”
The company is expecting its crackdown on password sharing to increase revenues for the foreseeable future, obviating the need for a price hike in the next year. But Alexander points out that Netflix will have to raise prices on its ad-free streaming tiers sooner or later, in order to draw a clearer distinction between them and its newer ad-supported tier if the company wants to drive more customers to the ad-supported plan which has a higher average revenue per user (ARPU).
That same goal is part of the reason that Netflix discontinued its cheapest ad-free tier in major territories like the United States, Canada, and the United Kingdom. The $9.99 Basic plan did not allow for a large enough price gap between ad-supported and ad-free tiers to sufficiently drive users to the cheaper (but more lucrative) Standard with Ads plan. Netflix believes that is part of the reason that it initially saw a smaller portion of new users opt for its ad plan than Disney+ did following their recently timed ad-supported launches.
A rise in subscription costs could also be accompanied by the launch of a free ad-supported TV (FAST) tier of Netflix. Company co-CEO Ted Sarandos said in January that Netflix was “keeping an eye” on the FAST marketplace and that it may decide to deploy FAST channels of its own at some point. If Netflix did decide to spin up a free tier, it could be critical to keeping user engagement high in a marketplace that’s saturated with hundreds of streaming platforms.
Part of being a leader in an industry is that your competitors are all watching you for clues on what to do — and what not to do — next. As the only streaming service to regularly report a profit, Netflix is already in uncharted territory; it has to choose its next steps carefully, as they could set the standard for the streaming market for the next decade or more.
Netflix
Netflix is a subscription video streaming service that includes on-demand access to 3,000+ movies, 2,000+ TV Shows, and Netflix Originals like Stranger Things, Squid Game, The Crown, Tiger King, and Bridgerton. They are constantly adding new shows and movies. Some of their Academy Award-winning exclusives include Roma, Marriage Story, Mank, and Ma Rainey’s Black Bottom.