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Maybe Netflix should stop hiking prices since it’s generating ‘very substantial profit’

Published Apr 19th, 2024 10:32AM EDT
3 Body Problem on Netflix
Image: Ed Miller/Netflix

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Netflix’s quarterly earnings report for the three-month period ending in March is in, with an unexpected surprise. No, a Netflix price hike isn’t imminent, though the company said that it doesn’t have a ceiling and it’ll continue to ask for more money from subscribers from time to time. But Netflix did announce that it will stop reporting subscriber numbers next year.

The decision might seem like an indication of bad news to come. Why would Netflix stop reporting subscriber figures? Is the company acknowledging that subscriber growth will soon be a think of the past? Perhaps, but it’s not necessarily an omen of bad things to come.

Netflix has grown into a massive company with a huge base of subscribers. It just added over 9.3 million net customers in the March quarter to reach 270 million subscribers globally. This rate of growth obviously isn’t sustainable indefinitely, as the market is limited and there’s plenty of competition. Netflix has reached a maturity where it doesn’t need to reveal subscriber figures every single quarter.

If this sounds somewhat familiar, it’s because others have done this before. Apple is the most prominent example.

Several years ago, Apple stopped reporting iPhone sales when new devices were released. Apple had reached a point where record launches weren’t possible. Yet that didn’t stop the company from selling hundreds of millions of iPhones and making plenty of money from iPhone sales.

Netflix indicated in its March 2024 earnings report that it’s no longer focusing on user growth in its reporting. Instead, it’ll transition to revenue and operating margin as markers of its financial performance. Meanwhile, user engagement will determine customer satisfaction.

Netflix said it’s generating “very substantial profit and free cash flow,” so it doesn’t need to report subscriber counts or average revenue per member. Remember that quote because we’ll refer to it every time a new price hike is announced.

money heist korea netflix
(L to R) Jun Jong-seo as Tokyo, Lee Hyun-woo as Rio, Jang Yoon-ju as Nairobi, Park Hae-soo as Berlin, Lee Won-jong as Moscow, and Kim Ji-hun as Denver in Netflix’s Money Heist: Korea. Image source: Jung Jaegu/Netflix

Netflix also said it is making money from ads and the extra member accounts that users add to their primary subscription so they can share passwords. Memberships are just “one component” of Netflix’s growth.

Finally, Netflix says it has different subscription tiers in various countries at different prices. As a result, “each incremental paid membership has a very different business impact.”

Netflix will continue to report major milestones as it crosses them, which should offer the market some insight into its growth. The streamer says it’ll continue to provide a breakout of revenue by region each quarter. Also, Netflix says it’s providing more information on engagement to measure the success of its business, more than competitors do.

When is the next price hike coming?

Netflix’s decision shouldn’t surprise anyone, though the market isn’t happy. Netflix shares dropped more than 6.5% in pre-market trading on Friday, despite Netflix’s quarterly performance that outperformed expectations.

It’s where we were always heading. Netflix is probably only the first streaming giant to stop reporting subscriber counts. And it’s precisely because it reached a point where it can’t expect massive growth like it did in the early days or during various inflection points. The pandemic and the anti-password sharing ban are such examples.

As for regular users, they shouldn’t worry about Netflix increasing the costs anytime soon as it stops reporting user growth. The streamer made no announcement on that front. But Netflix said during the earnings call that it doesn’t have a “set position” on a ceiling for pricing. Here’s Co-CEO Greg Peters’s quote:

You can look at pay TV as a potential marker for where people have spent before, but we really actually don’t think of it, so much is defined by that… As we add more entertainment value, then, of course, we can go back to our subscribers and ask them to pay a little bit more to keep that virtuous cycle moving.

As I said before, price hikes should be accepted as long as a Netflix subscription is valuable to the user. As long as Netflix puts out great content rather than mediocre originals, subscribers will keep returning for more. And they’ll agree to price increases.

That said, it’ll be interesting to see when and why Netflix will decide to raise prices again. After all, it’s generating “very substantial profit and free cash flow” as it is from all those varied revenue streams.

Chris Smith Senior Writer

Chris Smith has been covering consumer electronics ever since the iPhone revolutionized the industry in 2008. When he’s not writing about the most recent tech news for BGR, he brings his entertainment expertise to Marvel’s Cinematic Universe and other blockbuster franchises.

Outside of work, you’ll catch him streaming almost every new movie and TV show release as soon as it's available.