Is Netflix Worth Its Price?

D.BCooper's picture
Rank: Orangutan | 250

As I'm sure most of you have seen, Netflix has recently decided to increase its subscription price by 13 % to 18 %. Meaning, standard will go from $11 to $13, basic $8 to $9, and premium $14 to $16.

Following the announcement, shares scored 6 % (stock price currently 354.64) suggesting that investors seem to think Netflix offers a great service for its price.

CNBC article:

*It's also still an inexpensive entertainment option, said Rich Greenfield, an analyst at BTIG who has a "buy" rating on Netflix. HBO charges about $15 per month for its streaming service and the average cost of traditional pay-TV tops $100 per month.

"Whether it's a movie ticket, HBO or ESPN as part of the cable bundle, the price-value that Netflix offers is compelling,*" Greenfield said, in an interview.

Last time they did a price hike in 2017 they also promised 'better content' but I'm skeptical. Honestly, the most time I spend on Netflix is scrolling around looking for something decent to watch, cringing, and then not watching anything. Every now and then I find some gem in their originals but it's pretty rare. For those of you that aren't leeching of your ex's account, do you agree with this latest hike? Overall, how much are you wiling to pay for the service?

Comments (29)

Jan 15, 2019

Netflix is worth it strictly based on them having The Office.

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Jan 15, 2019

Sounds like something Michael would say.

Jan 16, 2019
NovemberRain:

Sounds like something Michael would say.

That's what she said

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Jan 15, 2019

Short term, I think the added revenue from the price hike far exceeds the impact of customer defections or slower new subscriber growth. These subscriptions are generally pretty sticky, and the extra $2/mo probably isn't enough to motivate someone to take the proactive steps necessary to cancel. It's still way cheaper than cable.

The real question is how does Netflix protect its position as other content creators, and in some cases suppliers of content to Netflix, start to build out their own streaming services. No matter how many streaming services are created, I'd think the average consumer will probably only pay for one or two. Change will be driven more by FOMO than a few dollars a month. As long as Netflix has the best original content and a good selection of binge-watch reruns, I don't expect people to be very price sensitive.

Jan 15, 2019

I'd agree - a $2/mo jump certainly doesn't foreshadow a consumer exodus. Granted, Netflix originals are currently better than any other platform atm (after HBO) but if their plan is to use this new revenue to continue investing in subpar Birdbox-esque projects (which had a budget of almost $20mil) and their prices keep increasing, I think more users down the road are going to take a pass.

Jan 15, 2019

From a consumer standpoint, my biggest question is where advertising ultimately fits into the streaming service model. Netflix tested inserting trailers between episodes, and from what I could tell, users howled. But on the other hand, most of us grew up paying for the privilege of watching cable TV with 75% content and 25% ads. Obviously the pendulum has swung towards consumer preference of uninterrupted viewing, but I wonder if that won't swing back in the event a true content champion emerges. I'd think a combination of subscription and ad revenue is the holy grail for Netflix.

Jan 15, 2019

Most stuff on netflix is trash, but still it is so cheap compared to other options (TV), and still has better content then other streaming services. Also, you have to understand, you can share it with others so if you split the cost with your family or whoever you live with, it can easily cost under $5 per month.

Jan 15, 2019

True. But same goes for Amazon Prime, Hulu, HBO etc if I just share my password (obv with different limit restrictions). I do agree that's its way cheaper than TV though.

Jan 15, 2019

Netflix could be $50/month at this point and it wouldn't lose too many subs in the long-run. Might get some protest unsubs but those usually resub in short order.

Jan 15, 2019

At $50/mo? What makes you say this?

Jan 15, 2019

In depth research, obviously.

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Jan 15, 2019

What if I told you I spent the better part of the last 5 years analyzing Netflix and Hulu price elasticity and did an in-depth analysis of relative pricing to comps? The $50 estimate is the result of that painstaking analysis. If you want the detailed report, it'll cost you.

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Jan 15, 2019

No need, I was just curious.

Most Helpful
Jan 16, 2019

My first response is that you're not telling the truth.

If you counter that you are telling the truth then your analysis is wrong. Three would certainly be customer loss at $50/month. Many people I know have netflix as a backup for $10/mo (or free using another login).

Personally, I'm very fortunate and dont have to make a budget or watch my spending (which cant be said for a majority of Americans). I'd cancel the day of an increase like that, I'm sure many others on tighter budgets would as well.

Honestly, I'd almost cancel now because I very rarely use it, but my kids love a few shows on there. The problem for Netflix is that competition is increasing significantly, which is also reducing the product offering. I'd say there's a 50/50 change I'll be a Disney+ subscriber in 18 months instead of Netflix even at $15/month

twitter: @CorpFin_Guy

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Jan 16, 2019

I think the one thing people are forgetting is the increasing competition. Prime Video is quickly rising and developing their own content. However, the BIGGEST most POWERFUL competitor still hasn't officially entered the fray. When Apple announces its service that might be free on apple devices, I expect a huge hit to Netflix stock. The reason I have faith in Apple pulling it off is their massive cash pile. They can easily pay 50% more than Netflix pays to actors, directors, and producers to lure them. For example, what is an extra $500k on a $1mm contract when you are sitting on $200B?

"If you ain't first, you're last!" - GOAT

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Jan 16, 2019

It's cute you think that shows ALL IN cost under 1mm to produce. I believe the average is around 3 to 4mm per show and it increases for shows with the production quality of something like Westworld or GoT and decreases at quality level of most of CW's shows. Either way, with 1.6k shows on netflix at an average of 3.5mm per show it would cost apply about 3BB extra. That's not even factoring in Netflix's 7k Movies.

Could Apple afford it? Yeah, probably. Would it be a sound business model? Hell no.

Jan 16, 2019

Didn't he mean contract with the actor, etc, not the show budget??

Offshore liffe

Jan 16, 2019

First of all, I never said that was the all in cost, I was making an example of 50% additional pay. Guess even that example was over your head.

My point is Apple can easily pay to license top shows and develop their own to compete with Prime and Netflix. Eddy Cue has committed to this in the past and if you read into Apple's latest developments in this, it proves they are serious about it. With lagging sales in hardware, especially as the smartphone wow-factor wears off across not just iPhones but all phones (which is why the $1000 price point isn't working anymore) this is even more crucial to Apple's growth and it's commitment to rapidly grow its services business.

Also as other people have mentioned, people overvalue Netflix's offerings. Of the thousands of available content, how much of it do you actually watch? How many garbage movies and shows do you scroll past?

"If you ain't first, you're last!" - GOAT

Jan 16, 2019

Absolutely - it's more expensive to go to one movie per month in New York vs. having Netflix. Also, I think that if you don't excessively binge shows when they come out, but watch them at a steady clip then just the opportunity cost of spending your time watching Netflix instead of going out to expensive dinners, drinks, etc. is worth it.

As others have said, it will be interesting to see how the competition fights its way into this market. For example, how are parents NOT going to be able to get the Disney subscription for their kids? Amazon, HBO, Hulu are already fighting it out in the market and Apple wants to join as well. Can't wait to see it all shake out (hopefully I get a lot of free 1-3 month trials out of it haha)

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Jan 16, 2019

Yes. Their original content is getting better and better and it's a whole $2 more per month. I'll accidentally wash more than $24 in 2019 by forgetting about it in my pockets.

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Jan 16, 2019

We got rid of cable 4 years ago so our main source of TV is Netflix and Amazon Prime. If there wasn't this big announcement, I wouldn't even have noticed the extra $2/mo they would be taking from me. Not sure what the price point would be for us to consider giving it up - maybe around $20/mo. Even then, it is still cheaper than the $150 we were paying for cable.

I think they would be better focusing on a few really good original series instead of a handful of good series and hundreds of mediocre/shit ones. Or they need to do similar to Prime where you can rent newer movies for cheap. I'd pay $2 or so to watch a movie that was just out in theaters once or twice a month if they are trying to find a way to increase their selection quality. A lot of other people may bitch about the paying extra though.

Jan 16, 2019

Let's all get real for a moment. All these streaming services are great. In a few more years they will make cable nearly obsolete until they all pool together and offer a $150/month service for them all, effectively re-inventing the wheel, thereby re-inventing cable.

Jan 16, 2019
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