Netflix will raise prices, seeking greater cash flow to fuel original content.

WHAT HAPPENED: Netflix’s approximately 58 million U.S. subscribers will see price increases from 13-18% as the company looks to increase revenue to create more original content.

Why it matters

  • This is the biggest and most wide-reaching price jump Netflix has enacted since launch—and the fourth time it has increased subscription fees (the latest hike occurred in late 2017). Up until now, the company kept a $8/month basic plan, raising rates only for premium subscriptions that offered higher-quality video and simultaneous streaming across numerous devices. Now the basic plan will be $9/month and the premium plan will increase from $14/month to $16/month. The mid-range and most popular plan—allowing users to stream on two devices concurrently—will rise from $11/month to $13/month. But this is still cheaper than HBO ($15/month), and on par with Amazon Prime ($13/month) and Hulu’s ad-free service ($12/month).
  • However, a quick survey of the landscape shows that competition isn’t going anywhere, especially with AT&T’s forthcoming streaming service featuring HBO and Disney’s, which is set to launch in 2019. More of these platforms are amplifying their original content offering—for Netflix’s part, the company is aiming for half of its offering to be original content sometime in the next few years. To do so, it is accumulating significant debt (now more than $12 billion). As of September 2018, Netflix had $18.6 billion in content-spending obligations—by the end of the year, it also had $2 billion in negative free cash flow. Still, fuller ownership of its content and greater vertical integration (the company purchased a studio in October 2018), may make Netflix’s current spending worth it in the long run, even if it hurts consumers a little bit right now.