Monthly subscription price hikes, not a huge deal to your wallet. Massive cash flow boost to companies.
We all love our monthly subscriptions whether it be a streaming service like Netflix, music service like Spotify, or an everything service like Amazon Prime. Being able to sign up and see that low fee each month that you can subscribe to in order to enjoy that service almost always seems like an easy decision to do so.
For any one of the services above you are expecting to pay somewhere in the range of $10-20 a month.
However, over time, as we know, things tend to cost more. Streaming services are no different.
The difference, when it comes to streaming services, is that there is really only ever a $1-2 per month price hike at a time. When it is done this way, as a consumer, more often than not we forget it ever even happened or maybe we won’t even notice in the first place. So the direct impact to us is minimal.
But to these companies raising their prices? The impact is huge. $1-2 per month for us is millions for them.
Before we get into the direct impact on their operating, let’s take a look at the chart below from Statista that shows us a history of Netflix’s price hikes from May of 2014 to January of 2019.
This is a perfect example of how incremental price hikes over time have impacted consumers. Even today, Netflix is now $15.49 for their standard membership, even higher than we see here.
The same goes for Amazon. Below we see that chart from MarketWatch.
Amazon has seen similar price hikes over the past 17 years.
So how much does the monthly increase matter to companies like Netflix and Amazon? A lot.
Let’s just say every Netflix subscriber has the standard membership at $15.49. The increase from $14 per sub to $15.49 for 222 million subscribers is $330,780,000 on a monthly basis.
For Amazon Prime, from $10.75 a month to $11.58 a month for their 200 million members gives them an additional $166,000,000.
Why do they need all this extra capital?
In Netflix’s case, they need to create high quality original content for their subscribers. If they can’t continue to do so, they’ll lose subscribers to other streaming services. However, the cost of creating this content continues to grow at a fast pace.
For Amazon, they have show streaming as well. But, their biggest cost is associated with their 2-day package delivery service. Maintaining the infrastructure and cost of that is one that will also continue to rise as Amazon continues to grow.
So with the continuing need of more money to put back into the business, what’s the easiest way to create more money? Increase the monthly cost to your already massive subscriber base. It will not go straight to revenue, but instead give them the necessary resources to continue to increase their ability to produce a better product and hopefully result in higher revenues.
But it isn’t always as easy to just make their service cost more.
There will be a price point where consumers will no longer be willing to spend more for their service. The big question is when do they hit that. And when they do, what’s their next move to create capital.
As a consumer the question is the same, how much more are we willing to spend on these services?