This week, leading video streamer Netflix (NASDAQ:NFLX) provided the most detailed breakdown of its subscriber base ever. The disclosure comes as the company prepares to overhaul its financial reporting structure starting when it releases fourth-quarter results next month.

"Starting with our Q4'19 earnings report in January 2020, we plan to disclose revenue and membership by region, which is how we think about our business," the company wrote in its October letter to shareholders. Those regions will be the United States and Canada (UCAN); Europe, the Middle East, and Africa (EMEA); Latin America (LATAM); and Asia-Pacific (APAC).

The data included average revenue per paying streaming membership -- essentially an average revenue per user (ARPU) figure when you exclude free trials. Netflix is also about to stop disclosing free trial memberships, since the company says that figure is a "less insightful predictor of future growth than in the past." It's clear now that Netflix's price increases have absolutely worked wonders for the tech company's fundamentals.

Netflix interface

Image source: Netflix.

ARPU marches higher in Netflix's most important region

Within the time frame covered by the disclosure, Netflix has had two price increases in the U.S.: one in October 2017 and another in January 2019. Those bumps brought the price of Netflix's most popular "Standard" plan, which includes two simultaneous HD streams, from $10 per month to $11 per month and then to $13 per month. Here's how those increases bolstered Netflix's ARPU in its UCAN segment, which jumped 33% from $9.84 to $13.08.

Chart showing Netflix ARPU by region

Data source: SEC filings. Chart by author.

For the most part, the price increases have not hurt membership additions. Since 2017, there has only been a single quarter in a single region when Netflix lost members.

Netflix doesn't only increase prices in the U.S. Bernstein analyst Todd Juenger tracked price hikes in over 50 markets around the world in a research note to investors in July. While the ARPU trends in Netflix's other three segments are heading higher, they also tend to be more volatile due to other factors like currency fluctuations and varying levels of discretionary income across markets.

The data table provides year-over-year changes both on a reported basis and a constant currency basis, and in some cases the difference has been as high as 19 percentage points (LATAM in Q4 2018). Latin American currencies took a beating relative to the U.S. dollar in 2018 due to geopolitical factors.

Figures presented on a constant currency basis remove foreign exchange fluctuations that occur throughout the quarter, and large differences between reported and constant currency underscore the major impacts of currency movements. Netflix's ARPU figures are presented on a constant currency basis, and the company does not have a currency hedging program in place.

Boxed in from above and below

While Netflix has enjoyed considerable ARPU gains over the past three years, the company may be reaching a limit to its pricing power, at least in the U.S. Among over-the-top (OTT) streaming services, AT&T's HBO Now and forthcoming HBO Max sit at the high end of the spectrum at $15 per month, as HBO leverages its powerful brand that is built on high-quality content.

Newer entrants like Disney and Apple are coming in aggressively at $7 per month and $5 per month, respectively, undercutting Netflix and presenting competitive alternatives. Needham analyst Laura Martin recently argued (again) that Netflix should introduce ads as a way to subsidize lower price points in response to rivals. Between competitive pressure from below and an apparent upper limit above, Netflix is getting boxed in.

"There's a little more [price] sensitivity, we're starting to see a little touch of that, and what we have to do is just really focus on the service quality, make us must-have," CEO Reed Hastings conceded on the last earnings call. "I mean, we're incredibly low-priced compared to cable."

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