If you watch movies or the stock market then you have probably heard the news. Streaming giant Netflix raised the prices of their “middle and highest-tier plans for the US by $1 and $2 respectively.” As a result, their stock shot up ain value. Business Insider reports:
The company’s stock is up 2.69% to about $189.53 on Thursday, following the news that Netflix will be increasing the price of its subscription services to help cover its increasing content production budget.
The decision has two potential results for Netflix. Let us start with the positive. If subscriptions are not affected by the price adjustment, then the company brings home a substantial sum. “Netflix reported 51.92 million US streamers in its last earning report,” so the price adjustment will give the company a lot of capital to reinvest. As the market for unique and independently produced content increases, Netflix could increase the quantity and quality of its material, thereby attracting new subscribers and boosting revenue.
On the other hand, the company runs a risk of losing subscribers. As Yahoo Finance reports:
Netflix subscribers have rebelled against price increases in the past, most notably in 2011 when the company stopped bundling its streaming service with its DVD-by-mail service, resulting in price increases of as much as 60 percent for customers who wanted both plans. Netflix lost 600,000 subscribers and its stock price plummeted by 80 percent in the subsequent backlash.
While they go on to explain that investors and analysts are generally pleased with the decision to raise prices, the subscribers may not be. Any loss in subscribers anywhere near 2011 levels would be a disaster, giving competitors such as Hulu and HBO a massive advantage.
Netflix may be playing with fire here and we will have to see if these market gains can continue into the weekend, but one thing is for sure; no subscriber likes a raise in price. Investors should keep their eyes on Netflix in the coming months to see how their subscriber base stacks up to its last quarterly report.
To read Business Insider’s article on Netflix’s stock surge, click here.
To read Yahoo Finance’s article on Netflix’s price adjustment, click here.
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