Recent winter storms no doubt reminded many consumers and content providers about the high societal value of binge-watching TV. It might not appeal to everyone, but hibernating inside, cozy and warm under a blanket, and getting lost in the latest season of an exciting (or campy) show seems like the perfect escape.
Nothing is free, however, and on Tuesday (Jan. 15), the stock market approved of Netflix’s biggest price increase in more than a decade, with the company’s stock up some 6.5 percent. That news comes as Netflix severs ties with app stores — with significant stakes involved for Apple.
Here are the price increase details: Netflix’s most inexpensive plan goes to $9 per month from $8 per month. The standard plan goes to $13 per month from $11. The premium plan — a consumer gets “ultra HD” and the ability to watch from four screens at the same time — costs $16 per month, up from $14.
According to CNBC, the new prices represent “the company's biggest increase since launching its streaming service 12 years ago,” and its fourth price increase ever. Customers in Latin American, the Caribbean and some other countries will also see the higher rates. Major international markets like Mexico and Brazil won't be affected.
The higher prices will help fund content, according to CNBC, and go toward financing the “heavy debt” it’s incurred to compete in a fierce streaming landscape that not only includes Amazon, Hulu and Apple, but media and content long-timers such as HBO and Disney.
Existing customers reportedly will be charged the increased prices over the next three months. The increases kick in immediately for new subscribers.
But those new subscribers will not be able to pay their month subscription fees through Apple and iTunes.
App Store Move
Netflix, along with Spotify, are skirting the app stores and their fees.
Spotify in 2016 “ended support for in-app subscription payments in 2016,” according a report in the Washington Post. “And amid the explosive growth of its video game Fortnite, digital publisher Epic Games has said it intends to create its own app store for games in a bid to compete with existing online storefronts. The company already offers its Android app for Fortnite outside of the traditional Google Play Store.”
At stake for Netflix? And for Apple?
Hundreds of millions of dollars that would otherwise go to Apple — which itself is facing some challenging times. Apple gets 30 percent of an initial subscription made through an app, an amount that declines to 15 percent after that. Apple reportedly earned as much as $257 million from those Netflix revenue sources. “But as Netflix continues to grow internationally, Apple stands to miss out on up to half a billion dollars in 2019 from Netflix alone, Randy Nelson, head of mobile insights at Sensor Tower, told the Washington Post.
As described in a PYMNTS column from late last year by Karen Webster, “In June of 2016, Apple gave developers a bigger incentive to capture more revenue from their apps in the App Store — and for Apple to collect more of it too. ... Instead of the 30 percent Apple used to collect in perpetuity for those in-app subscriptions, it reduced its cut to 15 percent for those that were downloaded and kept active for more than a single year.”
Apple’s reasoning? “It did so because apps like Netflix were avoiding signing up subscribers through the App Store to evade the Apple tax. Apple figured it was better to cut the ongoing tax to get subscription plays on board.”
Netflix added 7 million subscribers in the third quarter of 2008; the company is scheduled to report Q4 and full year 2018 results on Thursday (Jan. 17). That subscriber increase marked a significant beat from its forecast of 5 million customers. (CNBC reported that domestic subscription additions clocked in at just over 1 million compared to a forecast of roughly 670,000.) In a letter to shareholders about that Q3 gain, Netflix noted that “the variance relative to forecast was due to greater-than-expected acquisition globally, with strong growth broadly across all our markets including Asia.”
Of course, the competitors will keep on coming. Comcast-owned NBCUniversal plans a 2020 launch of its new streaming service, which will cost $12 monthly for consumers who want to avoid commercials, but will be free for consumers who don’t mind them and who have pay-TV accounts. Netflix even has a new streaming rival in the Middle East. But for now, the Netflix price increase is getting positive feedback, with the upcoming financial results promising to paint a more detailed picture of growth and where Netflix expects to go in 2019.
Wherever that leads, it won’t involve app stores.