Why Netflix is raising its prices

Netflix plans to raise the cost of its most popular packages — its first price hike since 2015

Netflix CEO Reed Hastings.
(Image credit: Ethan Miller/Getty Images)

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It's going to cost you more to watch the new season of Stranger Things, said Mike Snider at USA Today. Netflix announced last week that it is raising the cost of its most popular packages — its first price hike since 2015. The monthly cost of the streaming giant's standard service, which allows users to stream movies and TV shows on up to two screens at once, will climb $1, to $10.99 per month, while the premium package, which allows viewing on up to four screens, will increase $2, to $13.99. Price increases have been a sensitive subject for Netflix, ever since a poorly explained hike in 2011 resulted in 800,000 cancellations. But this one will help "finance a critically acclaimed slate of original programming," said Jillian Harding at CBS News. Netflix plans to spend $6 billion producing and licensing content this year, and has budgeted another $7 billion for 2018. All that cash has so far produced impressive results: Its roster of more than 200 original productions, including The Crown, Master of None, and Orange Is the New Black, helped it "land more Emmy award nominations than any TV network besides HBO this year." And its U.S. audience has more than doubled, to 53 million, since the February 2013 debut of House of Cards.

Netflix needs original content in part because its catalog of outside movies and TV shows is set to shrink, said Brooks Barnes and John Koblin at The New York Times. Disney announced in August that it plans to launch its own streaming services in 2019, and as a result, "Disney, Pixar, Marvel, and Lucasfilm movies will eventually disappear from Netflix." That's prompted Netflix to plow money into kids' content, including a deal with DreamWorks Animation for 300 hours of new children's programming. Meanwhile, Hulu is emerging as a credible Netflix rival, thanks to its strategy of "snapping up reruns" of popular TV shows, said Lucas Shaw and Gerry Smith at Bloomberg. This year, Hulu, which is owned by Disney, Comcast, Fox, and Time Warner, spent about $2.5 billion to acquire more than 3,000 episodes of current and former TV shows, including ABC's Blackish and NBC's 30 Rock. It also surprised the industry by beating Netflix in a bidding war for NBC's blockbuster series This Is Us, forking out $3.5 million per episode for rights.

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The question is, how many streaming services are consumers willing to pay for? asked Brian Fung at The Washington Post. It used to be that cord cutters could subscribe to one or two streaming sites and get a vast array of TV and movie choices for far less than the cost of a cable bundle. But as more companies enter the market with their own offerings, from Disney to Apple to Viacom, and existing streamers "keep adding features and original video," consumers might need to subscribe to four or five — or more — sites to get the content they want. That could pose a real dilemma for potential cord cutters: "At a certain point, the cost of an internet plan plus various streaming services equals the price of the traditional TV bundle." As the war heats up, it makes sense for streaming companies to keep adding new content to hook subscribers — "which appears to be exactly what Netflix is doing."

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