Netflix has started the new year with a price increase to all three of its subscription options in the U.S.
This change in price will affect new subscribers immediately, and current subscribers will see the change within the next three months. Netflix’s least expensive plan will rise from $8 to $9 while the most popular HD standard plan will move from $11 to $13. This is the largest price increase since the streaming service’s debut in 2007. The initial announcement sent the company’s stock up 6.5 percent, according to CNBC.
Marketing professor Manjit S. Yadav said Netflix likely decided to make this change because the company is creating original content to fend off competitors in the market, and the cost of creating the material is significant.
“Content has become [Netflix’s] source of competitive advantage,” Yandav said. “As the focus on content increases, the underlying cost continues to rise, and at some point, some of those costs, to preserve profitability, have been passed to customers.”
After the price change was announced, Netflix issued a statement saying increases are necessary to support the company.
“We change pricing from time to time as we continue investing in great entertainment and improving the overall Netflix experience,” a Netflix spokesperson said.
Netflix announced a few months ago that it might test lower prices in countries in Asia. Whether this move will affect the change in price in the U.S. is up for speculation since Netflix has not formally issued a statement regarding the topic.
“It is standard practice that companies develop pricing strategies that reflect the realities of different markets,” Yandav said.
Only time will tell whether this change will affect the number of subscribers the streaming service has. Biochemistry sophomore Miles Fowkes said he will continue to support Netflix through the change.
“The increase in price doesn’t necessarily bother me,” Fowkes said. “As a fan of Netflix, I will continue to be a happy subscriber, as long as they continue to develop great entertainment.”
Yandav said Netflix’s success through the change is a reflection of the subscription company’s strength in the industry.
“Netflix is exercising its market power to an extent,” Yandav said. “It has a prominent position among streaming services, and its ability to successfully implement these prices is a function of its market power.”