Netflix (NFLX -0.62%) is raising prices for subscribers in the United States and Canada. Binge watchers will see their monthly payments increase by about 11% across the board for all three subscription tiers, beginning with the next billing statement.
Netflix's last price increase came in October of 2020 amid surging subscription rates, but that was a relatively small bump, compared to previous price hikes. The start of 2022 may be the best opportunity for Netflix to raise prices again and boost revenue for subscribers. Here are three reasons why.
Image source: Netflix.
1. Content pipeline
Netflix's 2022 content lineup includes a lot of highly anticipated series. The final season of Ozark debuts this month, but viewers will have to wait for the conclusion later this year. Shonda Rhimes' next Netflix original Inventing Anna debuts in February, and her Bridgerton series returns for season 2 in March. Stranger Things returns later this year, as does The Crown.
Netflix is still overcoming COVID-related production delays and should see more original debuts in 2022 than in 2021. It also expects a more normalized release schedule, which means it'll be able to space out its big series and films throughout the year to minimize subscriber churn.
With many subscribers looking forward to a lot of the content set to debut in 2022, they should be willing to absorb the price increase as part of their budgets.
2. Subscriber growth
Netflix's subscriber growth in the U.S. and Canada slowed to a standstill through the first three quarters of 2021 after a COVID-fueled surge in subscribers in 2020. It counted fewer than 100,000 net additions across the region in the first nine months of the year. And it's been near subscriber-saturation levels for several years now.
Investors are expecting strong fourth-quarter subscriber results after Squid Game took the world by storm. And Netflix historically has enacted price hikes after a strong quarter of subscriber growth. Still, the primary mode of revenue growth in the U.S. and Canada is going to be price increases.
An interesting pattern has also emerged after recent price hikes. The average revenue per subscriber increases more than the price hike. That suggests there's a migration toward premium plans.
That could be the result of more password sharing, as subscribers migrate to multistream plans in order to ensure everyone on the plan can stream at the same time. Curbing password sharing is extremely difficult, but Netflix started to take a tougher stance on it last year.
The good news, though, is that password sharers churn less, since it requires all parties to agree to canceling. As such, it could see a decrease in churn, which will be a big factor in net subscriber additions in the more saturated markets.
3. Relative value
Netflix faces a lot of competition these days, but its relative value versus other streaming options is still extremely high.
For example, consumers stream more kids programming on Netflix than any other streaming service, according to data from Parrot Analytics. Walt Disney's Disney+ may be the brand most closely associated with children's programming, but Netflix is still winning screen time.
This may be due to Netflix's broader selection of content, making it a one-subscription-fits-all solution for families. Many would much rather spend an extra $1 to $2 per month instead of adding a whole new subscription for $8 per month.
Meanwhile, Netflix continues to debut big-budget films such as Red Notice and Don't Look Up. Now that AT&T's WarnerMedia is going back to exclusive Warner Bros. film debuts in theaters, instead of simultaneous releases on HBO Max, Netflix is the only place where you can stream these kinds of big-budget films as soon as they're released.
Finally, Netflix is producing excellent global programming. No other streaming service is likely to provide North Americans with compelling series like Squid Game, Lupin, Money Heist, and other international hits. And with most of its subscriber growth coming from international markets, these kinds of surprise hits are more likely to pop up again on Netflix in the future.
The timely price hike should serve Netflix and its investors well in 2022 and beyond.
