As the incumbent, the company sets the bar for what other competitors can charge.
Netflix Price Hike:
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If you haven’t heard, the price of Netflix is going up – again. Better get used to it.
The Los Gatos, Calif.-based streaming company this week announced it is raising the price of its most popular service tier by $1 in the United States, Canada and some parts of Latin America.
The two-user, high-definition option for $8.99 is going up to $9.99 per month, with existing subscribers getting a year under the old price as a goodwill gesture.
This follows a similar hike in Europe earlier this year, as well as a $1 increase last year.
By most measures, Netflix is still a great value and most subscribers won’t mind. But the hike reflects both the company’s rising costs and its increasing incumbency in streaming.
On the cost front, the company is dishing out $4.3 billion (U.S.) in programming expenses over the next year and almost $5 billion more over the next three years, according to Bloomberg.
Netflix is increasingly trying to distinguish itself from competing streaming services with its own original content, such as crime thriller Narcos and political drama House of Cards.
Original content is more expensive than licensing existing shows, which isn’t exactly cheap either. Licensing costs are also going up now that there are other providers bidding for streaming rights in many countries.
Netflix reported a 63-per-cent drop in profit from a year earlier in its most recent quarter despite adding 3.3 million subscribers, a clear indicator of the toll those rising costs are taking. In that light, price increases are understandable.
But the frequency of the recent hikes – two of them just over a year apart – is starting to resemble that of cable and phone companies, who tend to boost subscription prices annually if not more frequently. Netflix clearly feels it has wiggle room with customers, which means increases could start to match that pattern.
The side effect is that other streaming services are sure to follow.
In Canada, Netflix is about to get another competitor in the form of Bell’s Crave TV. Currently open only to customers who subscribe to Bell’s TV service, or those of its partners, Crave TV will become available to all Canadians in January.
The service – which features a wealth of HBO content – is currently $4, but the standalone price will certainly be higher. The Netflix price hike has cleared the way for Bell to add at least $1 extra to whatever it was planning.
An increase at Rogers’ and Shaw’s Shomi service, which was opened to all Canadians this summer, is also inevitable. Shomi is currently priced – not at all coincidently – at the same $8.99 as Netflix.
Not wanting to be seen as inferior to its U.S competitor, but also not wanting to charge more than the market leader, Shomi will almost certainly follow suit. It wouldn’t be surprising to see it shortly after Bell announces pricing for Crave TV, which will happen at some point in the next two months.
All told, even subscribing to three streaming services at somewhere around $10 each is still a better value for many than traditional, expensive television. But that same value isn’t going to last, especially when the rising cost of internet service is factored in.
Bell, Rogers and others are now rolling out super-fast gigabit networks, and they’re ratcheting service pricing upward as a result. That sky-high cable bill that so many people saw Netflix as the answer to isn’t really going anywhere – it’s just morphing into a different form.