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Why Netflix is raising prices

The firm boosted subscriber charges Friday, a transfer that raised its inventory value — and eyebrows — throughout the streaming world.

“They clearly believe they still have the pricing power to do so and that they provide an exceptional value for the money,” Andrew Hare, a senior vice chairman of analysis at media consulting agency Magid, instructed CNN Business.

Hare believes Netflix (NFLX) understands that the US and Canadian markets are maturing and competitors is fierce. So it is attempting to offset its slower development with greater subscription prices.

“Raising prices is just one lever they can continue to pull right now, though I’m not sure for how much longer,” Hare mentioned.

The streaming media firm said Friday that it is raising the month-to-month value for a US subscription to its normal plan by $1.50, to $15.49, and its primary plan by $1 to $9.99. The premium plan elevated $2 monthly, to $19.99.

In Canada, Netflix’s normal plan additionally went up $1.50 to $16.49 Canadian and the premium plan rose $2 to $20.99 Canadian. Its primary plan remained unchanged.

Wall Street was proud of the information, sending Netflix’s fill up roughly 2% on Friday.

Spending cash to generate profits

Mark Zgutowicz, a senior analyst with Rosenblatt Securities, mentioned that Netflix spends a ton of cash on content material all over the world, which hasn’t been supported by two of its largest markets, US and Canada, the place subscriber development has “waned over the past several quarters.”

“We’re estimating that Netflix will spend $17 billion [in 2021] globally and that’s [coming] off $12 billion in 2020, which happened to be a down year because of Covid,” he mentioned.

That’s why traders will likely be so targeted on what Netflix says in regards to the present quarter and past, as these greater prices begin to kick in. If Netflix continues to usher in so-so subscriber development numbers, Hare believes that the corporate might want to concentrate on different methods to make its traders joyful.

“Subscriber growth in the US and Canada has been a difficult story to tell,” Hare mentioned. “That’s why they need to talk about the global [subscription] growth story, positive cash flow, new content, new growth opportunities like gaming, and potentially new business models and markets.”

Of course, Netflix is nonetheless Netflix and continues to be massively in style with its 213.5 million customers all over the world.

“In the near term Netflix continues to be the premier streaming service both at home and abroad,” Hare mentioned.

Beyond that? TBD. Challenges lie forward for Netflix on subscriber development, manufacturing prices and evolving shopper habits, Hare mentioned.

“They’ve reinvented the entertainment industry in the last decade.” he added. “Now a whole new era of challenges and opportunity begins.”

Opening the floodgates

A greenback right here and a greenback there won’t seem to be a lot, but it surely issues to each Netflix and customers.

For some customers, value will increase — even $1.50 — could also be an excessive amount of contemplating the inflow of companies lately from Disney+ to Peacock to HBO Max (which is owned by CNN mum or dad’s firm, WarnerMedia). Streaming is consuming into customers’ wallets.

As goes Netflix so goes the remainder of streaming, so this value hike doubtlessly provides a runway to the corporate’s streaming rivals to additionally elevate their very own prices sooner or later.

“I think it does for Disney+, I’m not sure for others like Peacock or Paramount+ because they don’t have the breadth of content as Netflix and Disney (DIS),” Rosenblatt mentioned. “It does give HBO Max some room to raise prices as well.”
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