Netflix, hungry for more growth, signals more price hikes

Enlarge / Jason Bateman and Laura Linney in the Netflix original series Ozark.

Netflix subscribers can expect more price hikes as the company looks to grow revenue in 2024. In its Q4 2023 letter to shareholders, Netflix also revealed plans to eliminate the cheapest ad-free plan available to users.

In the January 23 letter (PDF), Netflix said:

As we invest in and improve Netflix, we’ll occasionally ask our members to pay a little extra to reflect those improvements, which in turn helps drive the positive flywheel of additional investment to further improve and grow our service.

The statement will be unsavory for frugal streamers who have recently endured price hikes from Netflix and other streaming services. In January 2022, Netflix increased the price of its Basic no-ads tier from $8.99 per month to $9.99/month. In October 2023, that same plan went up to $11.99/month. Meanwhile, Netflix’s Premium ad-free plan increased from $17.99/month to $19.99/month in January 2022 and then to $22.99/month in October.

Netflix has attributed its price hikes to added features, like 4K streaming and gaming. But subscription fees remain the biggest source of revenue for Netflix, giving it obvious reason to leave a door open for even more price hikes in the near future.

Netflix has also used price hikes to encourage users to subscribe to its ad tier, where it has made more average revenue per user. Netflix with ads has cost $6.99/month since launching in November 2022 and has seen feature improvements, like moving from 720p resolution streams to 1080p.

Killing off the cheapest ad-free plan

In another attempt to push subscribers into watching ads on Netflix, the streaming company stopped offering new subscribers the aforementioned $11.99/month, ad-free Basic plan. It included 720p resolution, downloadable content, and support for one device. The change spiked the cheapest price for ad-free Netflix 55.06 percent to $15.49/month.

Netflix customers who were already subscribed to the ad-less Basic plan have been allowed to keep using it. But it seems like that grace period will soon end.

Netflix’s letter reads:

The ads plan now accounts for 40 percent of all Netflix sign-ups in our ads markets and we’re looking to retire our Basic plan in some of our ads countries, starting with Canada and the UK in Q2 and taking it from there.

Netflix originally cut the Basic plan in Canada before following suit in the US and UK. Combined with the fact that most of Netflix’s North American users are from the US, it’s expected that Netflix will cut the Basic plan in the US, too.

Netflix’s letter said ad membership grew when it stopped offering the Basic ad-free plan to new subscribers. Ad tier membership grew almost 70 percent quarter over quarter in Q4 2023. The tier has over 23 million subscribers, per Bloomberg.

During an earnings call on Tuesday, Netflix co-CEO Greg Peters noted Netflix’s 2024 priorities as including “pricing optimization” to help improve operating margins and grow revenue and its ad business.

Netflix’s ad business: years of work ahead

Netflix said this week that it has 260.28 million subscribers globally (for comparison, Disney+ has 66.1 million subscribers, Hulu 48.5 million, and Amazon Prime Video is estimated to have about 180.1 million). That’s after adding 13.1 million subscribers in Q4 2023, Netflix’s biggest Q4 yet.

But despite currently besting competitors in subscriber count and cash flow, Netflix faces similar challenges when it comes to wooing advertisers that may be unaccustomed to working with streaming services (which previously had limited advertising opportunities). While Netflix has seen revenue grow from other efforts, like password crackdowns and price hikes, it plans to focus heavily on scaling its ad business over the coming years.

“I’d say we got years of work ahead of us to take the ads business to the point where it’s a material impactor to our general business,” Peters said.

Netflix is already trying to strong-arm customers onto its ad plan. The streaming bundle plan that T-Mobile offers will no longer include ad-free Netflix. Anyone who had ad-less Netflix through a T-Mobile bundle is getting downgraded. Peters said this week that under the previous bundle, “it was hard to make the economics work for everyone.”

Ultimately, the amount of ad dollars up for grabs, including from the declining linear TV networks, is too tasty for streaming services to pass up.

On Tuesday, Netflix announced a $5 billion, 10-year deal to stream World Wrestling Entertainment’s (WWE’s) Raw live on Netflix. The company was able to win a deal out from long-time Raw network USA, which is owned by NBCUniversal. NBCUniversal’s Peacock streaming service also has the rights to some WWE events. But Netflix’s seizure of Raw illustrates its interest in ad dollars from live sports and its pull and budget compared to aging broadcast and cable networks. Looking ahead, we expect to see Netflix consider additional live events that can appeal to advertisers.

Netflix said this week that it’s not anticipating the same amount of subscriber growth that it enjoyed in 2023 in 2024. But it does expect double-digit revenue growth. That newfound money has to come from somewhere. If Netflix can’t pull it all from new subscribers, it will force it out of existing customers through higher prices and ads.

Source link

About The Author

Scroll to Top