/cdn.vox-cdn.com/uploads/chorus_asset/file/23951361/STK072_VRG_Illo_N_Barclay_7_netflix.jpg "Netflix’s price hikes aren’t going to stop anytime soon")
Whenever Netflix raises its prices — which seems to happen roughly as often as Ben Affleck falls in love with an A-list celebrity — the company always gives the same reason. It needs the extra money, you see, in order to keep investing in the kind of programming and product its 302 million subscribers demand. That’s how the standard monthly price of ad-free Netflix jumped from $7.99 to $17.99 over the course of the last 13 years, including a $2.50 jump just announced during the company’s recent earnings report. There’s still a $7.99 monthly plan, of course, but that one includes ads — and it’s a dollar more expensive than it was a week ago.
But let’s be real with each other. You want to know why Netflix keeps raising its prices? Because it can. Because Netflix won. The rest of the streaming industry is competing ferociously over a finite pool of money, dealing with carriage disputes because of dwindling subscriber numbers, and panicking over the future of TV. Netflix is the future of TV.
Over the last couple of years in particular, Netflix has gone from a solid streaming service to a practically unavoidable, virtually uncancellable part of mainstream culture. It has developed a slate of hit originals — Stranger Things, Wednesday, Squid Game, The Night Agent if we’re being really generous — that give it at least something approximating HBO-style appointment TV. It has proven, through things like the Paul / Tyson fight and the Tom Brady roast, that it can manufacture cultural events more or less out of nothing. It pulled off a day of NFL games without a hitch and spent billions of dollars to get WWE’s Monday Night Raw, one of cable’s biggest ongoing hits, onto the platform. And underneath it all, it has built a massive library of reality shows, cooking competitions, and the other filler TV that makes up most of our TV viewership.
Netflix has gone from a solid streaming service to a practically unavoidable, virtually uncancellable part of mainstream culture
Now, for the price of your Netflix subscription, you get a bunch of expensive movies, high-end TV shows, sports, and low-budget reality programs all in one place. You don’t want it all, but you pay for it anyway. That, my friends, is called a cable bundle. And it’s still the best business the entertainment industry has ever devised.
The average price of a basic cable subscription in 2006, the year before Netflix started streaming content over the internet, was between $40 and $50. People watched something like four hours of TV a day, which meant they probably watched about an hour of ads every single day. Today, services like YouTube TV and Comcast’s new sports and news bundle are $70 or more and only provide live programming. Meanwhile, Netflix subscribers watch two hours of the service every day, across all those categories, and are paying as little as a tenth of the price. Many of them see no ads at all. Think of the savings!
Netflix sure sees it that way. Greg Peters, the company’s co-CEO, said on this week’s earnings call that he’s optimistic about Netflix’s “long-term monetization opportunity.” “We earn, right now, only 6 percent of the revenue opportunity in the countries and segments that we currently serve,” he said. “And as long as we continue to deliver on improving the variety, the quality of our TV and film slate, we gradually expand the offering with newer content types, we believe we’ll be able to increase that share progressively every year.”
Translation: Netflix is coming for your entire entertainment diet. And your entire entertainment budget.
As it looks at price increases, Peters also said, Netflix considers signals like engagement, retention, and acquisition. All that amounts to one simple question: do you keep using Netflix when the price goes up? The answer, so far, has almost always been yes. And so the prices keep going up. It’s really just that simple. It’s clear to Netflix that it could charge more — maybe a lot more — and hardly anybody would leave. So of course it’s going to push the limits.
The other way to understand the specifics of the pricing strategy is that Netflix would very much like you to have that ad-supported plan. The company has said repeatedly that it makes more money on the combination of a smaller monthly fee and advertising than it does from the larger subscription price alone. A large percentage of new subscribers are choosing ads — about 55 percent in the latest quarter — and Netflix is beginning to test exactly how much its existing subscribers will pay to keep their Netflix ad-free. It’s no accident that the ad-free price just jumped two and a half times as much as the base price did. And remember: even if we all switch to the ads plans, the prices might still go up. Cable TV is expensive and filled with ads, after all, and Netflix sure likes that business model.
Netflix would very much like you to have that ad-supported plan
Netflix continues to signal that its ambitions are only growing, too. Ted Sarandos, the company’s other co-CEO, indicated on this week’s earnings call that the company is more open to live sports than ever, after the success of the Christmas NFL games and the Paul / Tyson fight. The company is increasingly getting into video games, too, which accounts for another huge chunk of many people’s entertainment budget. Netflix is even starting to borrow tactics from YouTube and TikTok, bringing creators like Ms. Rachel onto the platform.
Reed Hastings, Netflix’s co-founder and former CEO, famously said that Netflix’s main competitor is sleep. Sleep’s still a pretty powerful market force, to be fair. And YouTube continues to be an even more dominant force in people’s video-viewing experience. But Netflix has ascended above practically everybody else — even its ostensible competitors are now licensing their shows to Netflix because that’s where the viewers are, and where the culture is.
The streaming wars have been messy, and they’re certainly not over, but Netflix already won. The only question left is exactly how rich the spoils of victory will be. And you better believe Netflix is going to find out.
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