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New Competition Won’t Stop Netflix From Raising Its Prices | The Motley Fool

How customers responded to the latest price increase
Investors were somewhat disappointed with management’s outlook for second quarter subscriber growth. The company forecast 5 million net additions, 4.7 million of those coming from outside the United States. Analysts were expecting about 6 million additions.

The weakness stems from the United States where the 300,000 net addition outlook is well below the 870,000 subscribers Netflix added in the second quarter last year. And that can be tied directly to the price increase Netflix made in January, which raised the price of its most popular plan by 18%. The company is still rolling out that updated pricing to new customers with plans to complete the change by next month.

In the company’s letter to shareholders, management wrote, “Our gross additions are unaffected, and we see some modest short-term churn effect as members consent to the price change.” That’s similar to what Netflix experienced in Canada after its fourth quarter price increase, and what it’s experienced from previous U.S. price increases.

Will the new competition change anything?
Disney priced Disney+ at just $6.99 per month or $69.99 per year. The media company also oversaw a price decrease at Hulu earlier this year to just $5.99 per month for its ad-supported service. Consumers could subscribe to both services for less than the price of Netflix’s most popular plan ($12.99 per month), and that’s before potential bundling discounts management has hinted at.

More competitors are going to enter that market, and it’s very likely they’ll price their services below Netflix’s. Comcast will reportedly offer its service free with ads to cable subscribers, and AT&T will offer three different tiers of service for its WarnerMedia product, but hasn’t released specific pricing. Apple hasn’t announced pricing for Apple TV+ either.

While the other competitors might have compelling price points, they don’t offer the same value as Netflix. The company has built up a library of original content that’s unique and valuable to consumers. Not to mention the social aspect of television — you don’t want to be left out of the water cooler conversation, because you’re the “weirdo” without Netflix. That gives the company a lot of pricing power with its subscribers despite increased competition.

via New Competition Won’t Stop Netflix From Raising Its Prices.

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