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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