Why Netflix Raised Its Monthly Subscription Charges

Netflix to pay off its debt

Netflix (NFLX) recently raised its subscription plans by as much as 18%. The company’s plan to raise prices is expected to pay off massive debt taken to invest in original shows and films, according to a CNBC report. As of September 30, 2018, Netflix had about $3.1 billion in cash and cash equivalents and around $8.3 billion in long-term debt. The company also raised $2 billion in new debt in October.

Why Netflix Raised Its Monthly Subscription Charges

Investment in original content

Netflix’s massive investment in original movies and programming has helped it to grow its subscriber base. Netflix invested about $5 billion in 2016 and around $6.0 billion in 2017 in original content and has reportedly spent more than $13 billion in new content in 2018. Like Netflix, rivals Amazon (AMZN), Hulu, and Apple are also investing in original content to attract subscribers.

According to The Diffusion Group, Netflix, Hulu, and Amazon Prime are expected to spend $10 billion annually and triple their combined investments in original shows by 2022. Apple also plans to allocate more than $4 billion in original content in 2022 from $0.5 billion in 2017, according to projections by venture capital firm Loup Ventures.

Competition in the streaming space

Despite massive investment in original content and a robust subscriber base, Netflix faces a threat from established players in the streaming space such as Alphabet’s YouTube, Amazon’s Prime Video, Hulu, AT&T’s (T) HBO Now, and other popular streaming service providers. New entrants such as Walt Disney (DIS), AT&T’s WarnerMedia, and Comcast’s (CMCSA) NBCUniversal are also ready to threaten Netflix in a year or two. While Disney and WarnerMedia have plans to roll out their streaming service in 2019, NBCUniversal has announced on Monday it will debut its service in early 2020.

Global OTT content market

Over-the-top (or OTT) offerings have attracted a lot of consumers. As can be seen from the chart, the global OTT content market has been developing rapidly and is expected to touch $245.8 billion by the end of 2028, according to a report by Future Market Insights.