Netflix's Recent Price Hike Makes More Sense After This Failure

Netflix announced last week that it is raising the prices for all of its subscription tiers, and many pundits are speculating that it has to do with the company's earnings report this week. On Thursday, Netflix revealed to shareholders that it did not meet its ambitious goal for new subscribers in the last quarter of 2021. The stock prices plummeted as a result, and some believe the price hike is an attempt at damage control.

Netflix promised shareholders that it would gain 222 million new subscribers by the end of 2021 – about 3 percent of the earth's population, according to The A.V. Club. It failed to do so, and this was not the first time in recent memory a Netflix earnings report has been disappointing. Now, industry experts and online commenters are speculating that the price hike Netflix announced on Friday, Jan. 14, was the company's attempt to mitigate the fallout from this failure.

If so, it did not work. Netflix stock prices dropped by over $100 overnight – 21.8 percent – after the earnings report. The company itself lost $50 billion in value, though of course, some are wary of relying too much on these kinds of speculative numbers.

Whether you subscribe to the idea or not, stock prices and market cap have a huge impact on a company's financial power and stability. As William Hughes of The A.V. Club put it, "modern capitalism isn't built on stability – it's built on growth... of the sort that continually gooses a company's stock prices upwards into Big Finance Guy Heaven. And it turns out that it's pretty damn hard to grow when you're already the biggest kid on the block."

Netflix was the first major streaming service of its kind, although there are now plenty of imitators and competitors. While this gives Netflix an advantage in many ways, it can also be a detriment. At a certain point, these companies simply will not be able to convince new subscribers to join due to the limit of the human population itself. If these companies can't survive without growing, they will peter out.

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Netflix's new pricing arrangement is explained in detail on the company's site here – every tier is going up by either $1 or $2 in price. So far, Netflix has provided only vague goals for the first quarter of 2022.