Netflix subscribers might be letting out a slight groan at the company’s modest price increases this morning, but investors are loving it.
Shares of Netflix have popped more than 4 percent to a new all-time high of about $192.25 in early trading on Thursday, following the streaming giant’s decision to bump up the price on two of its subscriber tiers. Its basic plan will remain at $7.99 a month, but the “standard” package that lets users watch on two screens at the same time is moving from $9.99 to $10.99 a month, starting in November. At the same time, its “premium” plan — which adds access on up to four screens and offers ultra HD — is jumping from $11.99 to $13.99 a month.
The price increase comes at a pivotal time in Netflix’s history. In comparison to its main streaming competitors, Netflix is spending money on content like its going out of style. Chief Content Officer Ted Sarandos said in August the company plans on spending $7 billion on content next year, on the heels of dropping $6 billion in 2017.
HBO, on the other hand, is putting “only” about $2 billion into original programming in 2017. Hulu is at about $2.5 billion for the year. Apple is jumping into the content game next year with $1 billion — chump change to the world’s biggest company. Facebook recently launched its “Watch” TV platform, and a YouTube rep recently told TheWrap it’s content budget is “competitive” with the other heavy hitters.
Upping its prices will allow Netflix to continue its aggressive content arms race, while at the same time giving it the capital to build its platform internationally. The streaming giant started to push its global brand in early 2016, and the results have been impressive so far. In its stellar second quarter earnings report back in July, Netflix announced international subscribers had passed domestic viewers for the first time in its history — with both hovering around 52 million a piece.
Michael Olson, a senior analyst with Piper Jaffray, told TheWrap that the company can continue its massive expansion and hit a combined 200 million subscribers if a few things break in its favor.
“If [Netflix] can get just 5 percent of households outside of US and China that are in the below-average income and 12 percent of households that are above average-income — compared to the 50 percent share of [US] households we estimate they’ll have by 2020 — that’d give them 100 million international subs by 2020,” Olson said. “You don’t need to have huge penetration, and there’s no heroic assumption there — that’s realistic and that’s the biggest potential for them.”
As studios like Disney slowly pull its shows from Netflix in the years ahead, it’ll become increasingly important for the company to pay up for content that plays abroad. “Okja” — a movie starring a giant pig and spearheaded by a famous South Korean director — is one example of “local content” helping Netflix expand abroad. Sarandos said as much on the company’s Q2 earnings call.
“It helped attract new subscribers but it also brings a brand halo to Netflix that it’s great content worth paying for,” he said. “For most people, they learned about Netflix for the first time when ‘Okja’ was coming out in Korea.”
It’s already been a banner year for Netflix shareholders, as the company has rocketed about 50 percent since early January. Now with a few hundred million dollars added to its monthly coffers, Netflix is primed to continue its rapid content grab and global expansion — something Wall Street is already excited about.