After raising prices for the second times in two years last fall, Netflix was understandably cautious about its results for the first quarter in 2018. Higher prices might cause some existing users to leave, while potential users might take a bit more time to explore their options before committing. Instead, Netflix beat the odds in Q1 and surprised shareholders by adding 7.41 million new users — about a million more than Wall Street predicted.
With that in mind, it’s no surprise that Netflix is going to continue to adjust its prices moving forward, especially as it spends more money on producing content and on marketing that content around the world. So while you shouldn’t expect a price hike any time soon, Netflix’s pricing model will be in flux for the foreseeable future.
In an earnings interview with Ben Swinburne earlier this week, Netflix CEO Reed Hastings discussed the company’s general philosophy when it comes to making the tough decision to ask its users to pay more.
“You have to earn it first by doing spectacular content that everybody wants to see,” Hastings said. “But if you do that you can get people to pay a little bit more because then we’re able to invest more and further improve. But we always approach it on a ‘have we earned more viewing from people’ basis first rather than a price-first basis.”
That’s an eloquent way of saying that Netflix is always looking for an excuse to raise prices. But by all accounts (and as evidenced by the first quarter results), Netflix has an extraordinarily compelling argument. Price hikes will never be welcomed with open arms, but Netflix made a bet that its multi-billion dollar investment in original content would make up for an extra dollar or two a month. The bet paid off, and will probably pay off again in a year or so.
