A Wall Street analyst believes Netflix will announce a price increase in the U.S or Europe soon, citing language used on earnings calls. The streaming giant, which started as a mail service for DVD rentals, has come to dominate the entertainment landscape, growing into one of the biggest companies in the world in recent years. After transitioning to streaming, Netflix began to invest in original content, instead of just showing licensed content, starting with House of Cards.
Currently, Netflix is arguably the biggest producer of content in Hollywood, producing countless TV shows and movies each year. Some, like The Witcher, Stranger Things, Tiger King, and Extraction, are big hits, while others, like Baz Luhrmann's The Get Down, have been seen as expensive mistakes. Regardless of how successful their original offerings are, Netflix continues to go from strength to strength, reportedly boasting almost 200 million subscribers worldwide. This considerable subscriber base allows them to justify their massive production budget for original content each year.
Now, Deadline reports that Alex Giaimo of Wall Street firm Jefferies has sent a communication to clients indicating that subscription prices could rise soon in either the U.S. or Europe. Giaimo says the prediction is based on the difference in language used between the two Netflix earnings calls this year, with the first mentioning no price rises, while the second used less firm phrasing. However, Giaimo also says that even though the price increase could lead to some subscribers canceling, this shouldn't affect Netflix's business too much, given the rise in subscribers worldwide during the pandemic. You can read his full comments below:
After a change in language regarding pricing on the (second-quarter) call, we believe a potential hike is probable in the near to midterm. In Q1, Netflix said that they were "not even thinking about price increases," while the Q2 language was more open-ended. We have confidence that Netflix can raise prices in international markets given its deepening content library and outsized consumer value proposition.
Essentially what this all means for the consumer is that they can expect to pay more for the same service as before, and if the increase happens in North America, it will mean the second price increase in two years after it was raised in 2019. However, in the past, it hasn't affected Netflix negatively, with stocks increasing each time it has happened since 2010. There is a difference this time, though, as Netflix is facing more competition in 2020 from other streaming services than it ever has.
With Disney+, HBO Max, Apple TV+, and all of the major networks either having launched or planning to launch their own streaming services, Netflix is up against more direct competition than ever before. As such, more subscribers are likely to look at other options for streaming the next time a price increase is announced, given that they are now spoiled for choice. It will be interesting, then, to see if Netflix emerges from this period stronger or weaker than before, especially with Disney+ increasing subscriber numbers steadily, and the promise of a raft of original Marvel shows on the service only set to drive that number higher.
Source: Deadline