Netflix reaps the dividends of its dominance by bumping up domestic subscription fees

Source:Global Times Published: 2019/1/17 16:03:40

Nearly a decade ago, former Time Warner chief executive Jeff Bewkes derisively implied the video-streaming service would never take over the world. "The mouse that roared" is more like it.

Like the fictional European duchy in the 1959 film that declared war on the US with a ragtag army, and won, Netflix outfoxed far-bigger rivals to achieve dominance. Current head Reed Hastings is claiming his booty. The company on Tuesday bumped up the cost of its domestic subscription fees by as much as 18 percent. It's the third such hike in five years, for its most popular plan which is now priced at $12.99 a month.

Sure, the increase amounts to only $1 to $2 per month, but Netflix has stumbled in the past with such tactics. Nearly three years ago it missed its subscriber growth forecast after lamely trying to pass off a price hike as a move to "un-grandfather" longtime customers.

That Hastings feels comfortable to charge more subscription fees just as competition is heating up says something. On Monday, Comcast's NBC Universal announced plans for its direct-to-consumer offering. AT&T and Walt Disney are preparing to launch their own streaming services. Hulu, with its hydra-headed owners the Mouse House, Comcast and AT&T, announced it has more than 25 million subscribers in the US - approaching nearly half of Netflix's count. But it is losing money too, some $1.7 billion, Breakingviews estimates, based on owners' filings.

Burning through an estimated $3 billion to $4 billion in 2018 is one reason Netflix wants to get more from its subscribers. Moody's reckons the company will achieve breakeven cash flow by 2023. It is spending to ramp up its trove of original content like "Bird Box" as media giants like Disney withhold TV shows and movies from the service. Still, Netflix is profitable and has more than 135 million customers around the world, giving it an enormous advantage.

There is plenty of room for consumers to subscribe to more than video streaming service. So far though, Netflix is top of the tree. It will be the end of this year before traditional media players release competing streaming services. NBC, AT&T and Disney will be fighting for second or third place - if they get placed at all.

The author is Jennifer Saba, a Reuters Breakingviews columnist. The article was first published on Reuters Breakingviews.

Posted in: INSIDER'S EYE

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