Netflix’s price hikes might be a good thing

Netflix Inc. (NFLX) is raising its monthly subscription prices in the US. The lowest plan rate will go from $8 to $9, the standard and most popular plan rate will increase by $2 to $13 and the premier plan will now cost $16 as opposed to the earlier rate of $14.

Some analysts see the price hikes as a positive factor that will help bring in more cash as the company continues to invest in new and original content which is key to maintaining its leadership position. Rising debt levels and cash burn are a concern for the company.

Netflix has been investing heavily in content. The company’s projection for content spend for the full year of 2018 is $13 billion. These investments tend to weigh on margins but are benefiting the streaming service in terms of subscribers.

In the third quarter of 2018, Netflix had a total of 137 million subscribers, with 58 million in the US. This number is expected to increase to 147 million subscribers, with 60 million in the US, in the fourth quarter. The company is set to report fourth-quarter 2018 results on Thursday after the bell.

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Netflix faces stiff competition from streaming platforms like Amazon Prime Video and Hulu and this will intensify with the arrival of new players like Disney (DIS) and Apple (AAPL) this year. With more and more media companies introducing streaming services, it is likely they might choose to restrict their content to their platforms alone.

This will pose a huge challenge to Netflix and might lead to increased costs in case the company opts for partnerships or similar arrangements to gain access to content. Moreover, with the new price hikes, the company’s offerings are pretty much in line with or costlier compared to its main rivals. It remains to be seen if the subscribers will stay loyal or look at other options.

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