Netflix recently announced that it is increasing the prices of its streaming plans. The price has not been increased substantially as it was raised between $1 and $2 per month depending on the plan you have.
The basic plan (standard-definition content / one stream at a time) is increasing from $7.99 to $8.99 per month. The standard plan (high-definition 1080p content and up to two streams at once) is increasing from $10.99 to $12.99 per month. And the premium plan (ultra-high-definition 4K content and up to four streams at once) is increasing from $13.99 to $15.99 per month.
This price increase affects Netflix’s 58 million US subscribers. And it will be applied to subscribers in Latin America and the Caribbean as well. Customers in Mexico and Brazil will not see a price increase. Netflix’s customers in Canada also recently saw a price increase in November 2018.
Netflix’s existing subscribers will see the price increase in the next few months. But the price will be applied to new Netflix subscribers now. Netflix will notify its existing subscribers by email about the price change thirty days before the change will be applied to their subscription.
This is actually considered Netflix’s biggest price increase since the streaming service launched about twelve years ago. And this is the second time in under fifteen months that Netflix increased its subscription rates. The last time that Netflix increased prices for its US subscribers was October 2017 as well. As a comparison, the basic HBO Now plan is $14.99 per month and Hulu is $11.99 per month for a subscription without ads.
Why Is Netflix Increasing Its Prices?
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” said a Netflix spokesperson via BuzzFeed.
Netflix spends heavily on its content, which results in negative free cash flow. This means that more money is being spent on content than what is coming in so Netflix covers the difference by borrowing more.
Some of the content that Netflix spends a lot of money on includes Friends and Stranger Things. It is believed that Netflix is paying AT&T’s WarnerMedia $100 million to keep Friends on its platform through 2019. And Netflix spends about $8 million per episode for its original program Stranger Things.
Last year, Netflix saw a negative free cash flow of $2 billion according to The New York Times. And this figure will likely increase to $3 billion this year. This is on top of Netflix’s existing debt of $12 billion.
However, Netflix is able to report a profit every quarter because of accounting rules. The company is able to record production and licensing costs later on. And with a total user base of 137 million subscribers as of the end of 2018, a subtle price increase could add up to billions in additional revenue for Netflix.
As Netflix is aggressively spending on acquiring and developing content, a number of rivals are also preparing to take on the video giant. The Walt Disney Company and WarnerMedia are planning to launch their own streaming services by the end of the year. Comcast’s NBCUniversal is building an ad-supported streaming service that is expected to arrive in early 2020. And Apple and Amazon are also ramping up their original programming efforts every year.