Why Netflix is raising prices again and what it could mean for cord-cutting
Netflix said Thursday that it's raising the prices of its U.S.-based streaming plans - a move that could disappoint some fans even as it helps support the costly original programming that's made the service so popular in recent years.
The cost of the streaming video giant's basic plan, at $8 a month, will remain unchanged. But its standard plan will now cost $11 a month, up from $10, and the premium tier will rise from $12 a month to $14. The prices are already in effect for new sign-ups and will be rolling out to existing customers later this month, Netflix said.
"From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience," the company said in a statement.
But beyond its immediate impact on subscribers, the price hike foreshadows a future in which the streaming video market is dominated by a handful of players that have captured the majority of a family's limited entertainment budget.
The streaming video market is ripe with competition. Companies like Apple and Viacom appear poised to enter the ring with their own internet-based television programming, and advances in video quality - such as high dynamic range and 4K Ultra High Definition - are taking the viewer experience to new levels. Meanwhile, companies keep adding features and original video; Netflix is likely to spend $6 billion this year on content costs.
There's some evidence that consumers are willing to pay for more than one streaming video service, according to Glenn Hower, a senior analyst at Parks Associates, an industry research firm. He said that "2017 was really the first time we've seen the percentage of households subscribing to two or more services outnumbering the households subscribing to a single service."
The question is whether there's an upper limit to this number. Some video die-hards already pay for three or even four streaming services at once, said Hower, but these consumers tend to spend a significant amount on cable TV, media devices like Blu-ray and DVDs, and video rentals. Yet while there are notable shifts happening in the way that consumers allocate their TV dollars, the overall amount of consumer spending on video entertainment hasn't changed much over time, he said.
Some may hope that consumers add more and more paid streaming services to their lineup, but undermining that idea is the cord-cutter's dilemma. This is the logic that prevents some consumers from ditching cable: At a certain point, the cost of an internet plan plus various streaming services equals the price of the traditional TV bundle, or at least is competitive enough that it's mostly a wash.
Hence the proliferation of streaming services threatens to force consumers to be more selective about which video products they choose. Although smaller, newer or niche services with less TV content could act as supplements to behemoths like Netflix, Hower said, it's plausible that the ecosystem for streaming video may only be able to support large, consolidated packages of content that appeals to wide audiences.
"We might be approaching that point where either services can't sustain themselves on the subscribers that they have, or they're being muscled out of the market by the bigger guys," he said.
If the typical American household is only willing to spend an average of roughly $100 a month on television, then it would make sense for Netflix (or Amazon, or Hulu, or whomever) to try to capture as much of that $100 as it can. One way to do that is by fleshing out its service, adding content and features, and then charging more in exchange - which appears to be exactly what Netflix is doing.
The other alternative for streaming services may be a "cable-ification" of online video, in which some companies act as a one-stop shop for multiple streaming services. Amazon Channels is one example, where Amazon Prime members may use Amazon's payment system to choose access to HBO, Showtime, PBS and other programming, which users then pay for on an a la carte basis. (Amazon chief executive Jeffrey P. Bezos also owns The Washington Post.)
But even then, the number of streaming services that consumers ultimately subscribe to may be limited by the same economic constraints that pushed some viewers to consider cutting the cord in the first place.