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Netflix Raises Prices as Consumer Subscription Spending on OTT Tightens

While Wall Street has reacted favorably to Netflix’s decision to set its largest ever consumer price increase, the streaming service is executing the plan at a time in which the market for subscription OTT services seems to be tightening.

Netflix, which reports its fourth quarter earnings Thursday, said in October that it expected to add around 9.4 million subscribers globally in Q4 2018, up from around 7.6 million in the fourth quarter 2017.

And there doesn’t seem to be any hard evidence—yet—that the market for major subscription streaming services is softening.

However, at CES—and in the months before CES—OTT executives talked about a consumer market that is reaching a saturation point in terms of the number of subscription streaming services it can carry.

“The idea of the average household subscribing to Netflix, Hulu, Amazon, HBO Plus and YouTube Premium all at the same time is ludicrous,” said Farhad Massoudi, CEO of ad-supported OTT company Tubi, speaking on a CES panel last week. “The average household has an income of $54,000 a year. They’re not buying $8 avocado toast.”

The comments jibe with what was said in early September at a Los Angeles-area OTT event by Julian Franco, head of AVOD for Walmart’s Vudu platform. Having recently polled Walmart video consumers, many of whom expressed a willingness to sit through commercials to cut down on their monthly bills, Franco also said he’s observed a movement in the market toward ad-supported video-on-demand (AVOD).

“Most households don’t have Netflix,” said Franco, noting that with just over 58 million users in the U.S. as of the end of Q3, the No. 1 streaming company still doesn’t reach the majority of Americans.

it certainly can be argued that the leading executives of AVOD platforms have every reason to suggest a favorable trend into existence. But they don’t seem to be just making this stuff up.

Speaking alongside Massoudi at CES, Kelly Campbell, CMO for a streaming company very much vested in the subscription market, Hulu, noted that it will be difficult for companies like Disney and WarnerMedia to launch subscription OTT services into the current market.

“I think what they’re going to find that it’s very difficult to drive subscriber momentum and growth, and scale as quickly as they need to to achieve a leading position” Campbell said.

Ironically, Campbell believes the same generational dynamics that have favored the subscription market over the last decade are now providing wind at the back of ad-supported services.

While millennial-aged consumers were turned off by the ad loads of their parents’ basic cable ecosystem, the Generation Z succeeding them into the consumer market is cool with a limited, well-managed ad load.

“Gen-Zers think differently about TV,” Campbell said. “They’re more receptive to advertising. They’ve grown up in this IP-powered universe, and they’re used to targeted advertising.”

Of course, for Netflix, which could spend as much as $12 billion buying and producing content in 2019, there is a solid business foundation to support a price increase.

The company is raising the price of its most popular tier, the one that supports two simultaneous HD streams, from $10.99 a month to $12.99 a month. The low-end, single-stream SD plan is going up one dollar to $8.99 a month. And the premium 4K/HDR-enabled, four-stream plan is going up two dollars to $15.99 a month.

“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience for the benefit of our members,” Netflix said in a statement.

Netflix’s stock price immediately spiked, around 6.5%.

“The price of a Netflix subscription remains a fraction of standard cable offerings, which averaged $107 in the U.S. And that leaves plenty of room for growth for Netflix and the other OTT services that are continuing change how we watch TV,” said Ooyala principal analyst, Jim O’Neill, in a statement sent to MCN. 

Daniel Frankel
Daniel Frankel

Daniel Frankel is the managing editor of Next TV, an internet publishing vertical focused on the business of video streaming. A Los Angeles-based writer and editor who has covered the media and technology industries for more than two decades, Daniel has worked on staff for publications including E! Online, Electronic Media, Mediaweek, Variety, paidContent and GigaOm. You can start living a healthier life with greater wealth and prosperity by following Daniel on Twitter today!