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Why Netflix Raises Prices

The company increased subscriber costs on Friday, a move that raised the stock price and eyebrows across the streaming world as well as the question "why?"

"They clearly believe that they still have the pricing power to do so and that they provide unparalleled value for money," Andrew Hare, senior vice president of research at media consulting firm Magid, told CNN Business.

Hare thinks Netflix (NFLX) sees that the US and Canadian markets are maturing, and it is trying to offset its growth with ARPU - or average earnings per capita. user.

"There is pressure to drive overall growth, generate a positive cash flow, all the while keeping pace with rising product costs and competition," he said. "Raising prices is just a lever they can continue to pull right now, though I'm not sure how much longer."

The streaming media company said Friday that it is raising the monthly price of a US subscription on its standard subscription by $ 1.50 to $ 15.49, and its base plan by $ 1 to $ 9.99. The premium plan increased $ 2 per. month to $ 19.99.

In Canada, Netflix's standard plan also rose $ 1.50 to $ 16.49 Canadian, and the premium plan rose $ 2 to $ 20.99 Canadian. Its floor plan remained unchanged.

Wall Street was pleased with the news, sending Netflix's stock up about 2% on Friday.

A dollar here and a dollar that may not seem like much, but it means something to both Netflix and consumers.

Mark Zgutowicz, a senior analyst at Rosenblatt Securities, said Netflix is ​​spending a ton of money on content around the world that has not been supported by two of its largest markets, the US and Canada, where subscriber growth has "slowed down over the past "several neighborhoods."

"We estimate that Netflix will spend $ 17 billion this year globally, and that is less than $ 12 billion by 2020, which happened to be a downward year due to Covid," he said.

For consumers, price increases - even $ 1.50 - may be too much given the influx of services in recent years from Disney + to Peacock to HBO Max (owned by CNN parent company WarnerMedia). Streaming erodes consumers' wallets, so a price increase for any service - let alone the king of streaming - is remarkable.

Like Netflix, so does the rest of streaming, so this price increase potentially provides a path for the company's streaming rivals to also raise their own prices at some point.

Netflix raises prices
"I think it does for Disney +, I'm not sure about others like Peacock or Paramount + because they do not have the breadth of content like Netflix and Disney (HAZE)"," he said. "It also gives HBO Max some room to raise prices."

If Netflix continues to bring in sleazy user numbers, Hare believes the company will need to focus on other ways to make its investors happy.

"Subscriber growth in the U.S. and Canada has been a difficult story to tell," Hare said. "That's why they need to talk about the global [subscription] growth history, positive cash flow, new content, new growth opportunities such as games and potentially new business models and markets. "

Of course, Netflix is ​​still Netflix and continues to be hugely popular among its 213.5 million users around the world.

"In the short term, Netflix continues to be the leading streaming service both at home and abroad," Hare said.

Besides the? TBD. Challenges lie ahead for Netflix in terms of subscriber growth, production costs and evolving consumer habits, Hare said.

"They've reinvented the entertainment industry in the last decade." he added. "Now begins a whole new era of challenges and opportunities."

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