Netflix Raise Prices despite Doubts from Investors
Netflix’s ability to raise prices for its video streaming
service is being underestimated by investors. The company is predicted to
thrive from its recent price hikes sans any big damaging result, according to
an analyst.
"Looking at the history of past Netflix price
increases, the impact on the pace of net sub additions has not been severe, and
has been decidedly temporary — and we believe the Netflix service is even
stronger and more entrenched now," another
analyst stated
"We believe this price increase, sooner than
expected, shows Netflix management has reason to be confident in their sub trajectory
and price inelasticity,” they added.
The entertainment company announced its price hike last
week that covers some of its subscription plans.
Netflix’s $10 per month high-definition plan is now set
to $11 per month, while its 4k streaming plan will cost $14 per month, a raise
from the regular $12 per month.
Since 2014, Netflix has increased prices at a 10 percent
per year rate for new subscribers and was still able to gain about 50 million
U.S. subscriber bases from the previous 34 million.
The predictions regarding price changes will contribute
to adding $600 million of incremental cash flow per year to the company and
will likely increase Netflix’s average revenue per user by 3.8 percent annually
in the future.
Netflix’s shares have reached 57.5 percent this year
through Wednesday and are up 1.4 percent after Thursday’s market open.
Netflix as an International Giant
Netflix is currently in second place when it comes to
non-sports TV programming expense yet its revenue in the U.S. is far from its
major competitors’ projections. In the TV business, companies like NBCU,
Disney, and Fox are more capable of spreading their programming expense to
cover a much larger revenue base, unlike Netflix.
The entertainment company’s ability to sustain its
current level of spending and competitiveness depends on its international
growth, something that U.S. TV giants can’t achieve nearly as effective.
When it comes to globalization, Netflix is a competing
force as it is by far the fastest-moving company in that sector. The company’s
international share of streaming revenue has risen to 41 percent in the past
year from 10 percent five years ago.
Since the company’s base of subscribers is larger overseas than in the
local region, the shift of that balance will continue. With that, Netflix can go on with their
spending progress on content beyond the levels of even the biggest U.S.-based
player, all the while paying off that cost over its subscriber base.
This edge is going to be more critical
internationally as traditional TV revenues dip in the U.S. which leaves the
legacy competitors scouring for new sources.
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Netflix Raise Prices despite Doubts from Investors
Reviewed by HQBroker
on
October 13, 2017
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