Netflix Raises Prices as NBCUniversal Enters the Streaming Wars

January 15, 2019

By Michelle Castillo

As NBCUniversal, Disney, and WarnerMedia prepare to launch streaming services, Netflix is raising subscription prices to ensure it has the budget to tighten its stronghold and expand its reach in the content wars.

Netflix announced on Tuesday it will raise its prices 13 to 18 percent, just as NBCUniversal confirmed it was entering the streaming business with its own subscription service. The forthcoming NBC ad-supported service will feature some of its popular movies and TV shows. CNBC reported that sources said the service will be free to cable and satellite customers and available for a price of $12 for cord-cutters, pending deals with the cable companies. The company expects to earn about $5 per customer in advertising revenue, CNBC reported.

As for Netflix's ($NFLX) customers, the cheapest monthly plan will rise from $8 to $9, while the standard HD plan will increase from $11 to $13. The 4K premium subscription will jump from $14 to $16. The changes would come immediately for new customers, and existing subscribers would get the price hike over the next three months.

Netflix will use the subscription hikes to fund its original shows and movies. Netflix previously said it planned to spend $8 billion on content in 2018.

While its original content budget is high, Netflix is fending off an increasing number of competitors. Though the company beat analyst expectations for domestic and international subscriber additions during its last earnings report, many analysts believe the streaming giant is close to maxing out in the U.S. market. Additionally, as more media companies like NBCUniversal, Disney ($DIS), and AT&T/Time Warner plan to debut streaming services in the next few years, customers may decide to move their eyeballs ー and more importantly, their subscription dollars ー away from Netflix.

A Deloitte study in 2018 found that 55 percent of American households subscribe to at least one streaming service, with the average person subscribing to at least three services. U.S. customers spend about $2.1 billion a month on these services, Deloitte estimated. U.S viewers already spend 38 hours a week watching video content, 15 hours of which is consumed via streaming services.

Meanwhile, Disney plans to launch its service, Disney+, late this year. The streaming service will feature new and original series, including content from the beloved Marvel and "Star Wars" franchises. As a result, Disney will also pull its content from Netflix. Time Warner is also expected to launch its WarnerMedia streaming platform, which will offer three different packages at various price levels. It is also seeking original movies and TV shows for its service.

It's not only traditional media providers Netflix has to fear. Apple ($APPL) has been in the market for original programming, locking up deals with Oprah and Sesame Workshop, among others. Sources have indicated that Apple wants to offer free content on its devices to bolster sales, a tactic favored by Amazon. The e-commerce giant also heavily invests in original shows and movies to encourage Prime subscriptions.

Hulu for its part has also been increasing its original programming budget. In addition to the luxury of smoother content deals under the protection of its owners ー Disney, Comcast, and AT&Tー Hulu offers both ad-supported and commercial-free subscription options to grow its revenue

YouTube also offers a similar over-the-top, cable substitute, YouTube TV. It's also producing its own original content that is free of charge to watch. PlayStation Vue also offers a way to watch live TV and on-demand content without a cable or satellite subscription.

And with more companies expected to enter the fray, and marketplace growing increasingly crowded, Netflix may find it needs to spend even more to sustain viewers' interest.