The price increases recently implemented in its core North American market illustrate the challenge facing Netflix and other subscription videos on demand (SVOD) providers in funding the production of new digital content while simultaneously minimizing customer churn.
Higher subscription fees in the US and Canada will help Netflix fund its platform’s new, exclusive movie and TV content production and licensing. Prices for its standard plan increased from US$13.99 to US$15.49, with a corresponding rise in Canada, upping the cost from C$14.99 to C$16.49. The premium 4K plan added another couple of dollars a month to cost US$19.99 in the US and C$20.99 in Canada.
Netflix investors at least appeared to welcome the move, with the company’s share price jumping 3% on the news before closing 1.3% higher.[i] The same may not prove to be true when it comes to the company’s estimated 74m paying subscribers in North America (around 34% of its global 214m total as of Q321). The increase is the third time Netflix has raised prices in the region in the last three years, with its premium subscription now 42% more expensive than it was in late 2018, according to estimates. They also push Netflix ahead of lower-cost rivals, including HBO Max (US$11.99 a month) and Disney+ (US$7.99 a month), and Discovery+ (US$6.99 a month for the ad-free version).
Netflix has wiggle room
The danger for Netflix is that its price increases could prompt North American customers to re-evaluate their choices in a fiercely competitive market where rival platforms are readily available and SVOD subscriptions easy to churn. The company does have wiggle room. Data compiled by JustWatch for the third quarter of 2021 indicates it is still the largest streamer in the with a 27% market share, followed by Amazon Prime Video (21%), Disney+ (14%), and Hulu (13%)[ii]. HBO Max, which had more downloads in 2021 according to Apptopia, is estimated to have just 10%. Statista estimates for 2020 based on subscriber numbers put Netflix on 20%, Amazon Prime Video on 16%, and Hulu 13%, with HBO Max accounting for 12% ahead of Disney+ (11%).
The company’s reliance on smartphone subscribers accessing its content will also play a pivotal role in what happens next. Netflix remained the world’s most downloaded entertainment app in 2021 on a global basis, according to Apptopia data, ahead of rivals Disney+, Amazon Prime Video, HBO Max, Hotstar, and Pluto TV, as well as YouTube, Google Play Games, and Twitch. But the company trailed HBO Max in the US, a territory that has seen intermittent declines in customer numbers over the last year (more in my recent blog Squid service up Netflix boost).
New smartphone content to keep customers happy
Whether higher subscription fees will be enough to push Netflix customers to jump ship on either big screen or mobile remains to be seen. What attracts people to Netflix in the first place is precisely what the company is trying to provide, namely a conveyor belt of new, exclusive films and TV shows to keep subscribers entertained. Netflix has promised to spend US$17.1bn on producing that content in 2021 after pandemic-induced disruption limited its’ spend the previous year, a figure which gobbled 68% of its 2020 revenue (US$25bn) and could be as much as half of its projected 2021 turnover.
Netflix chief executive Reed Hastings has hinted that investment could double or even triple over the next couple of years.[iii] The company has pointed out that streaming currently accounts for just 28% of the TV US consumers watch, with linear TV (cable and broadcast) delivering 64%. Netflix commands just 6%, which leaves the company with significant headroom for further expansion.
However, video streaming may prove to be just one source of the company’s growth in the longer term. Netflix has already embarked on a parallel exploration of the mobile games market. As of last November, its subscribers around the world have been able to play five mobile games – Stranger Things: 1984 (BonusXP), Stranger Things 3: The Game (BonusXP), Shooting Hoops (Frosty Pop), Card Blast (Amuzo & Rogue Games), and Teeter Up (Frosty Pop) – on their Android and Apple iOS devices when they log into their smartphone apps.[iv]
Netflix hopes that building access to those titles will play a critical role in encouraging users to keep accessing its streaming service (More in my colleague Jonathan Bennett’s recent blog Netflix prioritizes mobile for gaming subscriptions). With competition for eyeballs growing steadily fiercer, SVOD providers will need every component in their portfolio to keep the revenue flowing.
[i] Netflix raises monthly subscription prices in U.S., Canada, Reuters, 14th January 2022
[ii] Amazon, Apple, HBO Max Grow U.S. Streaming Shares in Q3, TV Technology, 1st November 2021
[iii] Netflix Could Spend Over $50 Billion on Content, The Motley Fool, 25th October 2021
[iv] Let the Games Begin: A New Way to Experience Entertainment on Mobile, Netflix, 2nd November 2021