Fresh from announcing higher monthly rates for stateside streaming accounts, Netflix (NASDAQ:NFLX) is apparently setting its sights on Europe for its next pricing move. Italian tech blog SmartWorld is reporting that Netflix is testing higher prices overseas.
Tests with some Italian subscribers (and likely for all of Europe) show membership rates rising by as much as 29%. Italy and its neighboring countries have the same three streaming tiers as U.S. users do, where the base plan offers standard-definition streaming on a single device. The most popular plan is the midtier platform offering high-def viewing across two devices at the same time. The high-end plan gives accounts superior 4K or Ultra HD content on up to four devices simultaneously.
One test keeps the base plan the same, pushing the rates of the mid- and high-tier services 18% and 29% higher, respectively. Another test has the three plans rising 13%, 18%, and 21%, respectively. These are only tests, but more often than not, these are the initial steps before an increase across the board in a certain region. Let's go over why this move could be huge for Netflix shareholders.
1. Netflix subscribers aren't flinching
The stateside increase announced several weeks ago lifts prices 13% to 18% across the three tiers, and it was naturally welcomed with a spike in Netflix stock and user outrage on social media. No one likes to pay more for something.
However, this is the fourth time in five years that Netflix has boosted its rates (up 63% across the four hikes), and folks keep coming. Stateside subscribers have nearly doubled over the past five years, and the revenue generated by Netflix has nearly tripled. We can always wonder how much larger Netflix's audience would be if it had stuck to its initial price points, but the company likely wouldn't be as financially successful as it is now and would have less money invested in content.
2. International growth is the real driver now
The lion's share of the growth at Netflix these days is coming from its expansion overseas. Just 58.5 million of the nearly 140 million streaming accounts at Netflix are U.S. subscribers. It began 2019 with 80.8 million paid memberships internationally.
International users are paying less, on average, but Netflix is making it up in volume. International subscribers overtook stateside accounts in 2017, and international streaming revenue took the lead in the second quarter of 2018.
And there's no looking back. The U.S. market is maturing for Netflix. Hulu actually nibbled at Netflix's huge lead last year, adding 8 million subscribers to its rolls. Netflix padded its domestic streaming member count by just 5.7 million net additions in 2018. With international revenue growing faster -- and now the largest slice of the pie -- every increase matters.
Check out the latest Netflix earnings call transcript.
3. Global content costs a world of money
If you've been noticing more shows and movies with subtitles on Netflix, it's not just you. Netflix is ramping up the original content it bankrolls. It's fitting that Netflix should grab its first Oscars outside the documentary category this past weekend with Roma, a Mexican-made movie in Spanish, which won as best foreign-language film, among other categories. It won't be the last.
Netflix has been making investments in regional content, and in some cases it's a requirement to launch in that particular country. Raising prices in Italy and presumably all of Europe is another big step in financing more original content from the film-happy continent.
Everybody wins, even those who will inevitably complain about the hike and threaten to cancel their subscriptions. If there's anything that we can be sure of over the years, it's that Netflix knows what it's doing.