Netflix is reportedly mulling another set of price increases across North America and Europe, and it would be sooner than later.
Alex Giaimo, an analyst at Jefferies, said in a report that the Netflix price increase would probably happen in the mid-term. In the first quarter of 2020, the company dismissed speculations that it will increase its prices. When the second quarter arrived, Netflix already changed its tune from not happening to non-committal.
However, he suggests that consumers look at Europe, Africa, and the Middle East closer. If the Netflix price increase is to happen, the company will implement the new rates in those markets first. The North American market will follow suit.
If the report is true, it would not be surprising considering that the price increase is a long time coming. For one, the streaming service does not gain revenues from advertising and mainly depend on subscription fees as its primary source of profits. The business model means that consumers can expect a subscription rate increase regularly.
Also, Netflix took a hit after its total market value dropped by almost 20%, based on its Q2 earnings report. The percentage translated to about $26 billion. In the US alone, it lost about 126,000 subscribers, which was a massive disappointment from its target for 300,000 new subscribers. The streaming service did not fare better worldwide as it gained 2.7 million additional users. Still, the total fell short of its five million forecast.
As of July 2020, the company has nearly 200 million subscribers worldwide, and is still growing.
According to the analyst, a Netflix price increase of $1 per subscriber would translate to an additional $500 million. Hiking that to $2 would reflect $1 billion on its books for the fiscal 2021.
The last time it did so was in May 2019 when it raised the amount of the standard plan to $12.99 from $10.99, and $8.99 from $7.99 per month for the basic plan. Premium plan users are billed $15.99 from the previous $13.99.
Statistica, which charted the Netflix price increase history, showed that the streaming service hiked its rates every two years from October 2015 to January 2019. But it raised the rates across the board between May 2015 and October 2015.
Netflix can afford to stave off any subscription price on markets that are not yet saturated. For instance, it is having difficulty attracting new subscribers in the US due to the presence of other streaming services that are equally strong. Apart from Netflix, video-on-demand services include Disney+, Amazon Prime Video, Hulu, and HBO.
In other countries in Asia, Netflix’s dominance remains unchallenged. The trend allows the company to announce price increases without worrying that its consumers will jump over to the competition.
The streaming service is expected to release its third-quarter earnings report on Oct. 20. Hopefully, it would give a glimpse into the direction of Netflix in terms of its rates for the different subscription plans.