Look How Much More Time People Spend on Netflix Than Competing Services

It seems like there's always a great new series or film on Netflix (NFLX -0.08%), but never enough time to watch all of them. The average Netflix subscriber carves out about 10 hours per week to watch the video-on-demand service, according to a survey by Daniel Ives, an analyst at marketing research firm GBH Insights. By comparison, Amazon (AMZN 1.49%) Prime Video and Hulu subscribers spend just five hours per week streaming.

Such a disparity speaks to the pricing power of Netflix, which has already gone through a series of price increases over the last few years. It also is a good indicator that its massive content investments are paying off, creating more loyal and engaged customers who will accept price increases.

Image source: Netflix.

A premium product

In many parts of the world, Netflix is a premium product. That keeps pricing relatively stable across markets to prevent customers from trying to game the system by signing up for Netflix in one country and using it in another. So, $11 per month isn't very expensive in the United States, but it's fairly pricey in a country like India.

That's why Netflix hasn't seen mass adoption in developing markets like India, where Amazon Prime Video is actually more popular. Amazon charges the same price for a year of Prime as Netflix charges for two months of service in that country. In the rest of the world, Amazon has dramatically undercut Netflix for its stand-alone streaming video service.

And Netflix should position itself as a premium product. It has some of the most popular original series and films among both critics and viewers. It has a catalog of well-differentiated licensed content as well. And its subscribers (at least in the U.S.) clearly value it more, watching it twice as much as other streaming platforms.

Nonetheless, Netflix remains in the middle of the pack in terms of pricing for its service in the U.S.

Data source: Amazon, Netflix, Showtime, Hulu, HBO. Table by author.

Netflix is a premium product without a premium price right now.

What's next in the Netflix queue?

During Netflix's first-quarter earnings call, CEO Reed Hastings explained the company's approach to price increases: "You have to earn it first by doing spectacular content that everybody wants to see. But if you do that, you can get people to pay a little bit more because then we're able to invest more and further improve."

Netflix plans to spend $8 billion on content on a profit-and-loss basis. Even more on a cash basis. It's an increase of about 20% over last year's spending. Add a massive marketing budget on top of that (to make sure everyone knows about its 1,000 new original titles this year), and Netflix expects to burn between $3 billion and $4 billion in cash this year.

Netflix's content is best-in-class, and there's a ton of it. It has certainly earned a price increase.

But Netflix may decide to focus on growing its audience, particularly internationally, instead of raising prices once again this year. Revenue grew over 40% in the first quarter thanks in part to the recent price increase. The price increase should continue to have a sizable impact on the top line throughout the rest of the year.

Even so, Netflix has been able to increase its subscribers at a pace that's faster than its content spend -- 26% year over year last quarter. As long as subscriber growth outpaces content spend, Netflix might be better off attracting a bigger audience.

Of course, subscriber growth gets harder as Netflix gets bigger. That's evidenced by the significantly slower user growth in the U.S. than internationally. So, it's good to know Netflix has the capability of raising its prices another 10% or so (without significant negative impact on subscriber count) if it needs to keep growing revenue to support its content spending. At the same time, all of that content spending is to drive subscriber growth, so if it becomes less efficient, Netflix can always scale it back.

As long as subscribers continue to binge twice as much as with competing services, Netflix still has room to increase revenue one way or another.