Netflix Has Pricing Power

When Netflix announced their latest price increase, our hedge fund clients wanted to know – will this cause people to cancel their subscription?

The answer: An overwhelming “No!”

Here’s the proof, straight from LikeFolio’s real-time consumer happiness monitoring engine:

If you look closely at the right side of that chart, you’ll see the purple line (Consumer Happiness Level) actually INCREASE after Netflix announced the price hikes. That really doesn’t happen, folks. Netflix has something special.

But what is that magic formula?

Thrill subscribers with original content they can’t get anywhere else.

And Netflix has become one of the best in the world at that, coming in second place among all streaming services to the King of Content, Walt Disney.

Happy subscribers mean having millions of people that are far less likely to cancel their service when the charge on their credit card increases.
And all of those $1-2 extra charges add up in a big way, increasing profit margins, and cash flow immediately.
Bottom line?

We believe Netflix customers are happy enough to accept at least 2 to 3 more subscription price hikes over the next 18 months without a significant impact on churn.

Netflix Is Expanding Its Dominance

It seems like every time you turn around, there is a new streaming service seeking a slice of the growing cord-cutting population.

Normally, we would expect this influx of competition to decrease overall market share for the category leader.

But not Netflix:

LikeFolio’s powerful tracking of consumer viewership mentions gives us real-time insights into how many people are talking about watching shows or events on each of the various streaming platforms.
We think of this as an indication of engagement – how much are subscribers actually using the product they’re paying for?
In the chart above, you can actually see Netflix’s share of viewership mentions increase from 25% in 2020 to 28% in 2021.
That’s a big move in a fairly saturated industry full of well-funded and aggressive competitors.
Strong engagement numbers tell us that Netflix subscribers are receiving high value for their monthly payment – another indication that they’ll be unlikely to cancel the service over a few dollars each month.

Netflix Subscribers Are Loyal

Despite a growing number of overall subscribers and near-constant programming controversy, Netflix cancellation mentions are 52% lower today than they were a year ago. In fact, the most common reasons we see for people claiming they are going to cancel their subscription to Netflix are political in nature, and therefore more likely to be public statements of ideology than an actual indication of a lost subscriber.
While Netflix customers may have serious objections to some of its original programming choices, the overall menu of content is so high quality that it is more likely a subscriber will simply move on and find a series they do enjoy.

And then binge-watch it until 4 a.m. without even realizing it.
Or is that just me?

Summary: It’s Netflix’s Game To Lose

Even after all of the massive growth, and the amazing run in Netflix stock (which our clients have been happy participants in)… we continue to see incredible opportunity in Netflix.

They’ve got extremely happy, loyal customers who will absorb reasonably (but frequent!) price hikes over and over again… as long as the company can continue creating original content hits.