Did you cancel your Netflix subscription yet? I didn’t think so.
Hardly anyone would over an extra one or two bucks a month.
Wall Street reads it the same way. After the world’s top video streaming service announced it would increase monthly subscription prices by 16 to 18 percent, Netflix stock rose by 6.5 percent. Investors who have watched with patience as the world’s top video streamer has shoveled money out the door are ecstatic to see a little more coming in. And no one doubts most subscribers will pay.
It’s a trivial hike — from $7.99 to $8.99 for the basic plan, and $2 more for HD video plans, to $12.99 a month for standard, and $15.99 for the Ultra HD plan.
Some of the extra money will end up on Netflix’s bottom line, but not much. The company spent $13 billion last year producing new movies and TV shows. But beyond hits such as “Stranger Things” and “Bird Box” are shows you’ve probably never heard of, such as “Sacred Games,” which Netflix produces in India or the Brazilian series “3%.” Much of that $13 billion was borrowed money; while Netflix reported $1 billion in profit for the first three quarters of 2018, the company is $12 billion in debt.
Thanks to the price hike, Netflix probably won’t have to borrow quite as much this year. But the company has no intention of reducing its investment in new shows. Netflix has said that it expects to have about 100 original TV series in production this year in languages other than English. That doesn’t count a stack of new US productions that include Uma Thurman, Michael B. Jordan, and Idris Elba, who presumably won’t be the next James Bond after all.
Why the spending binge? “That’s really not an option for them,” said Michael Goodman, who tracks media companies at Strategy Analytics in Boston. “If you really want to grow, you really have to have original content.”
Netflix would never have become a global media giant by streaming sitcom reruns and second-rate Hollywood movies. It took original shows like “House of Cards” and “Orange Is The New Black” to accomplish that, and it will take a constant stream of new content to stay on top.
Especially since a horde of massive media companies are coming after Netflix. I don’t mean Hulu, with its mere 23 million paying customers. Amazon is top of the list. It’s the only other video streamer with global reach, through its Amazon Prime service. Netflix has about 137 million global subscribers; Amazon doesn’t break out its numbers, but Goodman estimates that it’s pretty close to pulling even.
And of course, Amazon is primarily a retailer, one with seemingly bottomless pockets. It can afford to treat video as a loss leader, just another way to sign up more Prime members. It spent about $6 billion last year on “The Marvelous Mrs. Maisel,” “Jack Ryan” and other shows. There’s more to come, including a series based on Tolkien’s “The Lord of the Rings,” that may carry a production cost of $1 billion.
AT&T, having gobbled up media company Time Warner, has revealed plans to go into the streaming TV business in 2019. But there’s even worse news for Netflix: Here comes Disney.
This year the media giant will launch its own streaming service, stuffed with original content as well as favorites from the Disney library. It’s a double dose of bad news, because many of the most popular Disney films, including the “Star Wars” series and Marvel movies, are currently on offer at Netflix. Soon that content will be available only through Disney, along with massive amounts of new content, including a new “Star Wars” TV series.
It’s unclear how long it will take Disney to roll out its service worldwide. But the Disney brand packs a level of global firepower that no other media company can match. Say Disney spends $100 million on its “Star Wars” series. It will be an international hit; just dub it in different languages and show it everywhere. That $100 million will go a long, long way.
By contrast, Netflix doesn’t have any movie or TV franchises that are guaranteed worldwide hits. So it has to fight back with dozens of shows aimed at dozens of international markets.
“Netflix is going to have to spend $20 million here, $30 million there,” said Goodman. And it will have to do it over and over again, world without end. No wonder Netflix is raising its prices.
So that may explain the timing of the price hike.
“If Netflix is going to do a price increase they need to do it well before these new companies come into the market,” said Brett Sappington, a media analyst at Parks Associates in Dallas. By the time the new competition comes along, he argued, Netflix’s customers will have become used to the higher prices and less likely to switch.
With so much competition, the Netflix price hike might seem counter-intuitive. But Netflix is competing on quality. It’s got no choice. There were 495 scripted TV shows produced in the United States last year, according to FX Networks, and more on the way. Better shows are the only defense against that kind of competition. And someone has got to pay for them.Hiawatha Bray can be reached at firstname.lastname@example.org. Follow him on Twitter @GlobeTechLab.