Netflix Is Raising Prices, But Subscribers Should Still Be Happy

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If you love Netflix (NASDAQ: NFLX) originals like House of Cards or Orange is the New Black, you may have reason to cheer the streaming service's latest price hike.

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The red-lettered streamer said prices would go up for its most popular and its premium packages in the U.S. For its standard plan, which offers streaming on two devices and in HD when available, the monthly price will go up from $10 to $11. Subscribers to the premium plan, which allows streaming on four devices as well as Ultra HD, will see their monthly bills go from $12 to $14. 

The $8/month basic plan will not change, giving budget-minded subscribers a cheaper option.

In a statement, Netflix said, "From time to time, Netflix plans and pricing are adjusted as we add more exclusive TV shows and movies, introduce new product features and improve the overall Netflix experience to help members find something great to watch even faster." 

Investors cheered the move, sending the stock up as much as 4% to record highs. For subscribers, it may seem like Netflix prices just jumped, as the price hike the company announced in 2014 was delayed for existing subscribers, who didn't see their bills go up until last year.

However, Netflix's content budget has increased significantly since then, and, though no one likes to pay more, there are a number of reasons why the modest price increase will benefit subscribers.

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Feeding the content beast

Netflix's content expenses increase each year, with the company spending $6 billion in 2016 and putting out 1,000 hours of original programming. Next year, it will lay out $7 billion for programming, though Chief Content Officer Ted Sarandos noted that the "vast majority" will still go to licensed content. 

In the span of few years, Netflix has gone from what Time Warner (NYSE: TWX) CEO Jeff Bewkes dismissed as the "Albanian Army" to the most disruptive force in Hollywood. Today, Netflix's market cap is greater than Time Warner's, and the streamer nearly topped HBO for most Emmy nominations this year. In 2012, Netflix scored zero Emmy nominations; this year it had 91.

That number is likely to increase next year as its budget expands, and subscribers will reap the benefits.

Still an incredible value

Last year, Netflix viewers on average watched about 600 hours of the streaming service, or roughly 1 hour and 40 minutes a day, twice as much as they consumed five years before. 

Even with the upcoming price hike factored in, viewers are paying less than a quarter for every hour of Netflix they watch. The service offers not only a greater amount and broader range of original content than any of its competitors, but it also serves up popular syndicated shows like The Office and Friends, separating it from rivals like HBO and Showtime. 

The $12 that the average Netflix subscriber will pay for a year of the service is less than a single children's ticket at my local multiplex -- it's no surprise that movie theaters are struggling in today's media environment. And the leading streamer's $11/month price tag is still comparable to just two rentals from Blockbuster, back in the era when video store rentals were the norm.

Critics have pointed out that Amazon (NASDAQ: AMZN) Prime, at $99/year, and Hulu with limited commercials, at $7.99/month, are cheaper, but instead of Netflix subscribers dumping its service for an alternative, I think the opposite is more likely to happen. Netflix is considerably more popular than those rivals, generating significantly more viewing time -- and with even better content, it seems like viewers would choose Netflix over a cheaper competitor if they had to select just one service. HBO, by comparison, is still substantially more expensive at $15/month, while Showtime costs $11/month.

Some Netflix subscribers may have sore memories of the 2011 Qwikster debacle when the company separated its streaming and DVD-by-mail services, and doubled the price on the combined offering from $8/month to $16/month. That led to as many as 800,000 cancellations, but the Netflix of today is much different than it was then, when it didn't even have original content, and this price increase is modest by comparison.

With an even bigger slate of content set for next year, Netflix's value to subscribers only grows, even with the latest price hike. It's the right move for the business and its customer base.

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Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Amazon and Netflix. The Motley Fool recommends Time Warner. The Motley Fool has a disclosure policy.