Netflix Inc. (NASDAQ:NFLXA) said it would raise prices for both its midlevel and high-end plans in the U.S. for new and existing customers. The company needs to raise money to compete with a growing legion of companies trying to take market share away from the acknowledged streaming leader.
The company’s entry-level plan “basic” plan will remain at $7.99 while the “standard” plan will go up a dollar to $10.99 and the “premium” plan will jump two dollars to $13.99.
Nipping At Netflix’s Heels
Despite the need to raise capital to compete with companies such as The Walt Disney Co. (NYSE:DISD), which announced in August it would soon launch streaming services for both Disney and ESPN, Netflix hopes subscribers won’t abandon ship but will remain loyal.
With competitors like Hulu, co-owned by Time Warner Inc. (:TWXN/A), Disney and others, recently winning an Emmy for Outstanding Drama Series (“The Handmaid’s Tale), Netflix has little choice but to invest in programming like it has never done before. Company executives have said Netflix could spend as much as $7 billion on content next year.
Shares Up – UBS Says Buy
With share prices up 45% so far this year, UBS is telling its clients the company will report higher-than-expected Q3 subscriber growth Oct. 16. For that reason, UBS recommends buying the stock before the official earnings announcement.
In addition, Netflix is set to release what industry insiders call a "very strong" lineup of new content including renewals of popular shows like "Stranger Things" and "The Crown." There will also be 8 new original dramas.
Acknowledging The Competition
One potential drawback to the optimism expressed by UBS is the fact there is so much competition. Aside from the afore-mentioned Disney and Hula entries there’s Amazon.com’s (NASDAQ:AMZNB) Amazon Prime which recently announced plans to expand its streaming service into India with Italy, Spain and France potentially next.
Another problem with Amazon is the fact it offers a lot of perks that Netflix does not. This includes free two-day shipping, a free library of e-books and perks for Amazon services like Twitch. In addition, Amazon Prime Video is now available as a stand-alone product for $8.99 per month.
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The Problem In A Nutshell
The main problem all streaming services have is the ballooning cost of the product they deliver. As Netflix and others invest more and more in original content, the costs go up for everyone. It is, after all, a seller’s market for content providers.
Consumers are demanding new and original content, turning streaming services into studios no longer able to offer up previous theatrical releases only as entertainment. As costs increase, so will subscription costs. The public seems to have no appetite for going back to the old way of doing things anytime soon.