Alphabet (GOOG 1.06%) (GOOGL 1.08%) is raising subscription prices for the ad-free YouTube Premium experience. It's the first price bump in the service's four-year history, and it only applies to the family plan. The Google parent also seems to swim against the stream as video entertainment rivals Walt Disney and Netflix are leaning into ad-supported plans instead of tweaking their monthly subscription fees.

Why is YouTube raising prices for family subscribers right now? Let's figure it out.

Consumer frowns while taking dollar bills out of a wallet.

Image source: Getty Images.

What's new?

Instead of posting a press release about the price hike, YouTube sent out emails to affected subscribers earlier this week. The ad-free YouTube experience will soon cost $23 per month, up from $18. Individual subscriptions are unchanged at $12 per month.

The family plan covers yourself plus up to five additional family members. Sharing the cost as efficiently as possible, the resulting fee of $3.83 per user, per month is still a compelling discount to the single-person plan. However, it's also a sudden 28% price increase out of the blue.

The numbers above only apply to U.S. subscribers, by the way. Canadian subscribers have reported an identical increase from $18 to $23 per month but in Canadian dollars. British family plans are going up from £18 to £20 per month -- a milder 11% uptick.

And if you're in Argentina, where annual inflation is expected to exceed 100% in 2022, your YouTube Premium family plan will nearly triple from 179 to 699 Argentinian pesos. Furthermore, individual subscriptions in that troubled market are going up from 119 to 389 per month.

How reasonable is this price increase?

So, YouTube appears to have reviewed its Premium pricing on a market-by-market basis, lifting fees by different percentages to account for the economic reality of each country.

The American price hike is actually a reasonable inflation adjustment. The $18 monthly fee had not been changed since YouTube Premium added a family plan in May 2018. Inflation calculators peg a completely fair price for the same service at $21.24 today, after a total inflation lift of 18%. YouTube is overshooting that target, but not by much.

Alphabet rarely shares detailed results of its YouTube business, and management hasn't even mentioned YouTube Premium in an earnings call since the summer of 2020. The video portal's financial results are baked into the Google Services reporting line, together with other large-scale business operations such as Android Play Store app sales and the Google Search ads that keep the lights on in Alphabet's Mountain View headquarters.

So, it's not easy to tease out exactly how well the YouTube business is performing, but you know what they say about geese and ganders. This family plan price increase should probably be followed by similar boosts to the individual plans, too. The rate of increase might be different, but the whole platform faces the same inflationary effects.

YouTube Premium's place in the entertainment sector

The more profound question is, why is YouTube raising Premium rates at a time when other online video giants are moving in the opposite direction? Are YouTube Premium members less price-sensitive than Netflix or Disney+ subscribers -- or maybe more?

Alphabet is about to find that out the hard way. The change has been made, and now we'll see how subscribers react. Is the ad-free YouTube experience still worth about $20 a month?

I don't think Alphabet will spill the beans about the financial effects of this move, at least not anytime soon. However, I think we'll be able to figure out what's happening here by taking a close look at the ad-supported service tiers from Disney+ and Netflix.

  • Skyrocketing subscriber counts under those ad-based plans will mean that a lot of people are happy to accept some advertising in return for lower-priced entertainment options.
  • A slower ramp-up of the new ad-supported services would suggest that most consumers are prepared to stretch their personal budgets to avoid ads for car insurance, beer, and video games.

Is this price hike a good idea?

I got that price-hike email because I'm paying extra to dodge those ads. YouTube Premium also brings a couple of bonus benefits, such as access to YouTube Originals and the YouTube Music service. None of those bonus benefits matter to me, but I'm quite content to pay a couple of bucks per family member to quiet down the advertising babble.

I know advertising is the lifeblood of several thriving industries. Alphabet built its online empire on search ads, for example. At the same time, the constant presence of advertising material arguably makes each ad a little less effective, undermining the economic value of the advertising idea as a whole.

YouTube Premium's price increase is just one small development in that bigger picture. I can't wait to see how it all works out in the long run. Unfortunately, I'm not convinced that ad-based entertainment services will win the day, which means Disney and Netflix may be making a mistake with their explorations of advertising services.

And if I'm right about that, the conclusion that follows is that YouTube should do everything it can to nurture and support its ad-free subscription services. This price hike gets a gentle thumbs-up from me, a satisfied customer of the YouTube Premium family plan.