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Netflix (NFLX+9.41%) has mastered the art of striking while the iron is hot. But with its latest price hikes, it faces the challenge of pushing limits without losing viewers.
Netflix’s dominance in streaming reached new heights as its shares surged more than 15% in early trading Wednesday, briefly touching $1,000 before edging back. The rally came after the company reported adding a record 19 million subscribers in the fourth quarter of 2024, pushing its total subscriber base to 302 million.
The stock’s strong performance —up 79% over the past year — got an additional boost from Netflix’s plans to raise prices. But while investors cheered the move, a key question remains: How much more can Netflix charge before testing subscriber loyalty?
On Jan. 21, the same day it announced its fourth-quarter earnings, Netflix revealed plans to hike prices across most of its plans in the U.S., Canada, Portugal, and Argentina. The ad-supported tier is now $7.99 per month, up from $6.99, while the standard ad-free plan rises to $17.99 (from $15.49), and the premium plan hits $24.99 (up from $22.99).
Gregory K. Peters, Netflix’s co-CEO, called the ad-supported tier “an incredible entertainment value,” describing it as a “highly accessible entry point.” Still, market watchers say that with increasing competition in the streaming space, the company will need to offer compelling content to retain customers.
As it stands, price sensitivity among streaming subscribers seems to be decreasing. A survey conducted by software company Amdocs (DOX-0.35%) found that only 25% of consumers say price impacts their loyalty today, down from 38% in 2020. But that doesn’t mean Netflix can raise prices without consequences.
Todd Hay, vice president of revenue and analytics at Plex, argues, “The problem with Netflix’s ad tier is that it’s pretty expensive compared to free and paid alternatives.”
Consumers may begin questioning the value of Netflix as it raises prices, especially when services like Hulu’s (DIS+0.29%) ad-free plan ($18.99) and Max’s (WBD+2.51%) ($16.99) are in a similar price range. And while Netflix has taken incremental steps, there’s a limit to how much price hikes can continue without driving users away.
For price-sensitive consumers, the $7.99 ad-supported tier may be their only option. But Destiny Chatman, consumer expert at TopCashBack USA, warns that more price increases could push those customers away. “Netflix risks losing those customers who moved from shared accounts to a low-cost plan,” she said, referring to Netflix’s crackdown on password sharing in May 2023.
Ads could be a turnoff for many, too. Amdocs found that 38% of consumers oppose more ads, though younger generations, such as Gen Z and millennials, are open to the idea. Still, Netflix’s pricing could face competition from Hulu’s $10 ad-supported plan and Amazon Prime Video (AMZN+1.23%), which offers ads for $14.99 a month as part of its broader membership.
“If Netflix wants to stay competitive in the ad-supported space, it may need to rethink its pricing strategy,” Hay from Plex said.
Inflation is a major factor behind Netflix’s price increases, as the company looks to boost profits while still investing in high-quality content. “Price increases are necessary to continue producing the content that consumers expect,” Stefan Lederer, CEO of system software company Bitmovin, told Quartz.
Netflix has earned its reputation as the never-ending faucet for blockbusters, from the Korean horror “Squid Game” to the historical romance “Bridgerton.” Its viewership spiked on Christmas Day, too, thanks to the Jake Paul vs. Mike Tyson fight, which became the “most-streamed sporting event ever.”
“Customers are looking for increasing control over their entertainment experience, and at the same time, ready for content innovation,” Anthony Goonetilleke, Amdocs group president of technology, told Quartz.
If Netflix can strike the right balance of pricing, content, and customer experience, it could continue winning the streaming wars. Looking ahead, the company is gearing up for the return of “Stranger Things” and “Wednesday.” Earlier this year, it ventured into live TV programming with WWE’s “Monday Night Raw.”
“More dollars, of course, means better content and customer satisfaction,” said Ryan Schreiber of Streamline Technologies LLC. “The implicit agreement by the subscriber is that, ‘I will continue, but I expect to continue to have something to watch.’”