Netflix Has Raised Prices in 2 Countries — Is the U.S. Next?

After boosting prices for its basic and standard plans in Australia last month, Netflix (NASDAQ: NFLX) made a similar move in Canada this month, increasing the cost of the standard and premium tiers. The bumps ranged from 1 to 2 dollars in local currency. Management is always evasive when asked by analysts whether or not price changes are in the pipeline.

“But really, at this point, we’re not even thinking about price increases,” then-Chief Product Officer Greg Peters said in April. Peters, who was promoted to COO in July, elaborated more on the company’s thinking on the second-quarter earnings call, but his comments seemed to suggest that price increases are a real possibility.

[W]hen we look forward, I would say every country is in a different mode. And so we’re going to sort of continue to assess a bunch of different factors over time. We’ll look at macro factors country by country. We’ll also look very closely at our specific metrics, and it’s metrics like engagement, like churn.

And those are the signals that we have for indicating when we have created more value for our members. … And it’s not so much sort of an all priority plan that we have but really more using those signs that we’ve done a good job at building more value for our members, which indicate to us, hey, it might be time to go back to them and ask them for a little bit more so that we can then invest that further into amazing stories, great content, better product experiences and create even more value for them.

The price bumps in Australia and Canada came shortly after those comments, so clearly the factors that Netflix monitors in those markets suggested that the company could justify a price increase from providing “more value” to subscribers. Is the U.S. next?

Exterior of Netflix's LA headquarters

Image source: Netflix.

Offsetting an expected slowdown

Investors aren’t privy to much of the “specific metrics” that Peters was referring to, such as engagement or churn. Netflix closely guards engagement and viewership data, unless it wants to tout the success of a particular movie or series.

Netflix recently killed off its 30-day free trial, which has long been one of its most powerful ways to acquire subscribers, prompting speculation that the move is a precursor for a price increase. Jefferies analyst Alex Giaimo expects the streaming technology company to announce a price increase in short order, pointing to both Peters’ comments and the recent bumps in other markets. A $1 to $2 increase would translate into an incremental $500 million to $1 billion in revenue for fiscal 2021, according to the analyst’s estimates.

“We’re looking at different marketing promotions in the U.S. to attract new members and give them a great Netflix experience,” a company spokesperson told Variety regarding the discontinued trial.

In recent months, the company has created a hub of free content to attract new members, as well as licensed Narcos to ViacomCBS‘ ad-supported streaming service Pluto TV. It’s rare for Netflix to license its content for distribution outside of its platform, the last time being in 2018 when it licensed Bojack Horseman to Comedy Central.

The COVID-19 pandemic pulled forward subscriber growth to the first half of 2020 as people needed entertainment during stay-at-home orders. As a result, Netflix has acknowledged that growth could slow in the second half of the year, but a $1 to $2 price increase could easily mitigate much of that deceleration.

Netflix reports third-quarter results on Tuesday.

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Evan Niu, CFA owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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