Netflix’s price hike
The competition in the content streaming market in the United States (IYW) continues to heat up with new entrants in the market and existing players raising their prices. Earlier this month, Netflix (NFLX) announced a price hike for its plans. Accordingly, the company’s most popular plan saw a price hike from $11.00 per month to $13.00 per month. Netflix plans to implement this price hike in a phased manner for its existing subscribers in the first and second quarter of 2019.
Considering that Netflix intends to implement the price hike gradually, it expects the price hike to impact its net additions in the first half of the year. However, it also expects that the rise in prices will result in improving the company’s ASP (average selling price) in the United States in 2019, resulting in higher operating margins.
Netflix expects that the rise in prices will also help it to achieve its target of a 13% operating margin in fiscal 2019. Netflix anticipates paid net additions of 1.6 million members and expects to hit paid domestic memberships of 60.1 million in the first quarter of 2019.
The rationale behind the price hike
A major reason for Netflix raising its prices has been its rising investment in content. The company believes that putting the money from raised prices into creating new content will deliver more value to its subscribers. Content has been a key factor in the rising popularity of Netflix. As a result, the company is also increasingly investing in producing more of its content including shows, unscripted content, and movies. It is experimenting with different content genres that will appeal to audiences around the globe.
Currently, Netflix has a 10% share of viewers’ screen time in the United States and is facing rising competition from incumbent players like Hulu (CMCSA), AT&T (T), Disney (DIS), 21st Century Fox (FOXA), and Amazon’s (AMZN) Prime Video service. Netflix’s rising investment in content could result in the company inching ahead of the competition.