Every time Netflix raises its prices, which seems to happen about as often as Ben Affleck falls for an A-list celebrity, the company always gives the same reason. You see, you need the extra money to continue investing in the type of programming and product that 302 million subscribers demand. Here's how Netflix's standard monthly price without ads rose from $7.99 to $17.99 over the course of the last 13 years, including a $2.50 jump that was just announced during the company's recent earnings report. There's still a $7.99 monthly plan, of course, but that one includes ads, and it's a dollar more expensive than it was a week ago.
But let's be real with each other. Do you want to know why Netflix keeps increasing its prices? Because it can. Because Netflix won. The rest of the streaming industry is competing fiercely for a finite pool of money, dealing with carriage disputes due to declining subscriber numbers and panicking about the future of television. Netflix is The future of television.
In recent years in particular, Netflix has gone from a solid streaming service to a practically unavoidable, practically unchangeable part of mainstream culture. Has developed a list of successful originals – stranger things, Wednesday, squid game, The night agent If we're being really generous, that gives you at least something approaching HBO-style dating TV. He's shown, through things like the Paul/Tyson fight and the Tom Brady Roast, that he can manufacture cultural events more or less out of thin air. Made a smooth NFL game day and spent billions of dollars to get WWE's Monday Night Rawone of Cable's biggest ongoing successes, on the platform. And underneath it all, it's built a massive library of reality shows, cooking competitions, and the other TV filler that makes up the bulk of our TV audience.
Netflix has gone from a solid streaming service to a practically inevitable, practically unchangeable part of mainstream culture
Now, for the price of your Netflix subscription, you get a ton of expensive movies, high-end TV shows, sports, and low-budget reality shows all in one place. You don't want it all, but you pay for it anyway. That, my friends, is called a cable package. And it's still the best business the entertainment industry has ever come up with.
The average price of a basic cable subscription in 2006, the year before Netflix began streaming content over the Internet, was between $40 and $50. People watched something like four hours of television a day, which which meant they probably watched about an hour of ads every day. Today, services like YouTube TV and Comcast's new sports and news package cost $70 or more and only provide live programming. Meanwhile, Netflix subscribers watch two hours of the service every day, in all those categories, and pay as little as a tenth of the price. Many of them don't see ads at all. Think of the savings!
Netflix surely sees it that way. Greg Peters, the company's co-CEO, said in This week's earnings call who is optimistic about Netflix's “long-term monetization opportunity.” “We earn, right now, only 6 percent of the revenue opportunity in the countries and segments we currently serve,” he said. “And as we continue to deliver on improving the variety, the quality of our television and film slate, gradually expanding the offering with the newest types of content, we believe we will be able to increase that share progressively each year.”
Translation: Netflix is here for your entire entertainment diet. And your entire entertainment budget.
As it looks at price increases, Peters also said, Netflix considers signals like engagement, retention and acquisition. All of that amounts to a simple question: Do you still use Netflix when the price goes up? The answer, until now, has almost always been yes. And so, prices continue to rise. It really is so simple. It's clear to Netflix that it could charge more, maybe a lot more, and almost no one would leave. Then, of course, it's going to push the limits.
The other way to understand the details of the pricing strategy is that Netflix would be very much like having that plan with ads. The company has repeatedly said it makes more money from the combination of a smaller monthly fee and advertising than from the larger subscription price alone. A large percentage of new subscribers are choosing ads, around 55 percent in the last quarter, and Netflix is starting to test exactly how much its existing subscribers will pay to keep their Netflix ad-free. It's no accident that the ad-free price jumped two and a half times more than the base price. And remember: even if we all switch to ad plans, prices can still go up. Cable TV is expensive and Full of ads, after all, and Netflix likes that business model.
Netflix would very much like to have that plan announced by ads
Netflix goes on to note that its ambitions are only growing as well. Ted Sarandos, the company's other co-CEO, indicated on this week's earnings call that the company is more open to live sports than ever, after the success of the NFL Christmas Games and the fight of Paul/Tyson. The company is also increasingly getting into video games, which makes up another big chunk of many people's entertainment budgets. Netflix is even starting to borrow tactics from YouTube and Tiktok, bringing creators like Ms. Rachel to the platform.
Reed Hastings, co-founder and former CEO of Netflix, said that Netflix's main competitor is sleep. Sleep is still a pretty powerful market force, to be fair. And YouTube remains an even more dominant force in people's video viewing experience. But Netflix has risen above virtually everyone else, even its apparent competitors are now licensing their shows to Netflix because that's where the viewers are and where the culture is.
The streaming wars have been messy, and they're certainly not over, but Netflix already won. The only question that remains is exactly how rich the spoils of victory will be. And you better believe Netflix will find out.
