Netflix faces few headwinds from price hike | Major Businesses | Business
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Subscription video-on-demand (SVOD) leader Netflix said last week that it plans to increase prices in the US in November, a turn of events that sent the company’s stock skyrocketing.

netflix 9 oct 2017Others saw opportunity in the move as well, with US nationwide wireless carrier T-Mobile saying that its Netflix On Us service will continue to cover subscription costs despite the raise.

Netflix has stated that it will raise the prices of its standard plan from $9.99 per month to $10.99, while the premium plan will increase from $11.99 per month to $13.99. The basic plan for single-screen streaming will stay at $7.99 per month.

Wall Street reacted well to the announcement, and Netflix stock rose to $191.83 a share, up more than 4%. Investors believe that the margin help from the hike will outweigh negative headwinds from consumer dissatisfaction; helping with that bullish attitude is the fact that the last price increase had little effect on subscriber additions.

“Though [last year’s hike] may have caused some churn at the time, it was hard to say how much of that was actually due to the price increase or the amount of conversation in the media around the price increase, which brought an undue amount of user attention to it,” said analyst Mark Mahaney of RBC Capital Markets, in a note. “Plus, it’s likely that a large number of users who churned off have since returned, as we’ve seen a very strong 1H17 in terms of domestic sub adds.”

He added: “Pricing power has increased materially over the past few years as their content slate and technology has improved. The content, not price, is the leading churn/churn-back factor among Netflix subs.”

To that end, the streaming giant has $6 billion in content commitments for this year and is on the hook for $15 billion over the next few years — something that is competitively necessary but has squeezed margins. Content costs have been rising since 2010 for the company, but saturation has been slowing down its growth domestically on a quarter-over-quarter basis.

T-Mobile meanwhile said it would still cover a standard subscription for the SVOD service with Netflix on Us, the service that it first launched in September. For those that want the Netflix premium plan, the subscriber just pays the monthly difference between the standard and premium plans.

“The future of mobile entertainment is not about bolting a satellite dish to the side of your house or resuscitating faded 90s dotcoms,” said T-Mobile CEO John Legere. “The future is mobile, over-the-top and unlimited. While the carriers spend billions on their franken-strategies to cobble together carrier-cable-content mash-ups, the Un-carrier just leapfrogged them all by partnering with the best and giving it to customers at no extra charge. Because that’s what we always do. Give more to you without asking more from you.”
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