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Netflix raises prices

October 6, 2017

By Chris Forrester

Netflix has announced price rises, effective immediately, for its monthly subscription fees in major markets such as the US and key European countries, including the UK, France, Germany, and The Netherlands. Markets such as Spain and Italy will likely follow shortly.

In the US, the ‘Basic’ subscription fee, that offers single-screen streaming remains at $7.99 (€6.84) per month. But the ‘Standard’ and ‘Premium’ plans (respectively for two and four simultaneous streams plus 4K) have respectively been upped by $1 and $2, from $9.99 to $10.99 and from $11.99 to $13.99.

UK subscribers will see their bill up from £7.49 to £7.99 for the two-screens plan, and from £8.99 to £9.99 for the four-screens option. The ‘Basic” plan remains at £5.99. Changes in Euro prices are similar.

Equity analysts at Exane/BNPP say that yesterday’s share price reaction (+5.5 per cent in what was a fairly strong day for tech) to the announcement of widespread price increase is a testimony that investors trust Netflix’s pricing power.

“We don’t cover Netflix [but] we estimate that the price rise covers 75%+ of Netflix subscriber base, and more of its revenues given it takes place in higher ARPU markets. We don’t know the subscriber base split by plan, but assuming 50 percent of subscribers are on basic plans, such price increase would still add c5 percent+ to Netflix revenues. This, assuming unchanged investment strategy relative to revenues, provides Netflix with an additional $200-300 million to invest per annum – about $1 billion over the next 4 years. This comes on top of a content budget that has risen from around $5 billion in 2016 to $6 billion in 2017 and that we see at $7.2 billion for 2018 and around $9 billion by 2020 – dwarfing any other company globally (with AMZ not far behind).”

The bank, in a note to client October 6, says: “We continue to believe that most European free and pay-TV operators (including Telco/Cable) underestimate the power of Netflix and Amazon models (scale in content, cheaper distribution and operating costs, customer satisfaction due to the lack of advertising, and speed at which the “originals” catalogue is being built). We believe that broadcasting profits across the board will be under tremendous pressure in the next 5 years as alternative OTT offering draws audience away from incumbent platform, in turn reducing incumbent TV platform’s ability to invest in content and retain audiences.”

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