Netflix (NFLX 9.71%) investors are rejoicing over the news today that the dominant video-streaming company is hiking prices again, a little over a year after the price increase that came in late 2017. That time around, Netflix's most popular HD tier ("Standard") saw its cost get bumped from $10 per month to $11 per month. That plan is now getting hiked to $13 per month, an aggressive 18% increase as Netflix exercises its considerable pricing power.
Here's what the move means for investors.
|
Tier |
Old Price |
New Price |
|---|---|---|
|
Basic |
$8 per month |
$9 per month |
|
Standard |
$11 per month |
$13 per month |
|
Premium |
$14 per month |
$16 per month |
Data source: Netflix.
Moving on up
The new prices are effective immediately for new customers, while existing members will see the new prices implemented within the next few months. The changes will apply in the U.S., where Netflix had 58.5 million members at the end of the third quarter, as well as approximately 40 countries in Latin America where Netflix bills in U.S. dollars, according to the Associated Press.
Image source: Netflix.
Netflix doesn't disclose the mix of which plans its members are signed up for, but it's not difficult to get an approximation. U.S. streaming revenue was $1.9 billion in the third quarter, and 57 million of those memberships were paid memberships. That translates into about $34 per member during the quarter, or $11.33 per month. The Standard plan -- priced at $11 per month during that quarter -- is clearly the most popular plan, with relatively limited uptake of the Premium plan, which offers 4K resolution and more simultaneous streams.
With both Standard and Premium getting $2 price increases, that should translate into over $340 million in extra quarterly revenue in the U.S., before factoring in membership growth. Member growth in the U.S. has decelerated significantly in recent quarters since the U.S. market is quite saturated for the company. Netflix has become such a dominant force in pop culture that few members will cancel over $2 per month.
It's harder to estimate the international impact, since Netflix only discloses total international members (78.6 million at the end of the third quarter).
Netflix just cut out mobile middlemen, too
The price hike comes shortly after Netflix decided to remove in-app subscriptions on both iOS and Android last year. In doing so, the company will no longer have to pay the hefty commissions to mobile platform operators -- which can range from 15% to 30% -- for new and returning customers.
Netflix had grossed an estimated $853 million in revenue through iOS in 2018, according to Sensor Tower. Before factoring in member growth, that would suggest that there are somewhere around 6.4 million Netflix members that bill through iTunes, a decent proportion of the company's U.S. member base.
NFLX Operating Margin (Quarterly) data by YCharts.
The company has been able to improve its operating margin in recent years, even while spending lavishly on original content (and taking on copious amounts of debt). Between cutting out mobile middlemen and the price hike, the moves show that Netflix is increasingly focused on improving profitability.
Check out the latest Netflix earnings call transcript.
