While Netflix customers may have been bummed out to learn that their monthly subscription rate was going to be a dollar or two higher in the coming months, they should also prepare themselves for even more price hikes.
The price increases announced last week will see the $9.99 subscribers at $10.99 and the $11.99 subscribers at $13.99 in November (while the $7.99 subscribers stays the same). But while Netflix continues to grow, customers shouldn’t be surprised if their price increases even more over the coming months, according to The Motley Fool.
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Because Netflix competitors are priced higher than Netflix currently is, the streaming mogul still has room to increase its prices without a real risk of losing long-time customers. For example, CBS’ Showtime over-the-top service costs $11 per month and Time Warner’s HBO Now costs $15 per month.
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What’s more is that the more critically-acclaimed projects Netflix produces and the higher quality its content is, the more people will stick around during its inevitable price hikes.
While this month’s change in pricing is the third time in three-and-a-half years that Netflix has raised its subscription rate in the U.S., the company is only raising prices in mature markets, like Canada and Australia, both of which saw higher prices earlier this year.
Only raising rates in mature markets ensures that the company will see growth with lower-priced customers internationally. The higher-priced markets will essentially subsidize the lower-priced markets and allow Netflix to continue to produce award-winning content, grow internationally and fight its mountain of debt. (Producing original content isn’t cheap — the company says that it expects to burn $2 billion to $2.5 billion per year as it takes more original content production in-house.)
Price increases will help Netflix grow as an international streaming company as well as alleviate some of its dependence on debt in order to grow. With 50 million existing subscribers in the U.S., investors can expect to see roughly $600 million in additional revenue next year. Combined with revenue from new subscribers, Netflix should be able to grow revenue faster than it increases its content spending on an absolute basis.
