1. Netflix Raises Prices

Netflix raised prices again this week, taking its most popular package, the one that allows for two simultaneous streams (aka the family package) from $11/month to $13/month. This happened in tandem with their fourth quarter 2018 earnings report which saw them add an expected 1.5 million subscribers in the U.S. and an unexpected 7.3 million internationally.

Why It Matters

This will be the last time Netflix gets to raise prices in the U.S. in a bubble. Right now they’re still mentally part of HBOland for most viewers—a relatively inexpensive add-on to whatever pay TV package they already have. Given the breadth of Netflix’s offering, $13 still seems like a very good deal.

For now.

In January 2020, consumers will have a much broader array of add-ons, as three new Flixes come on the scene from Disney, Warner and Apple, with NBCU not far behind, along with an expanded CBS All Access. (Many will likely start to see the various Flixes as their primary source of content, with network TV as the add-on.)

That means a world of churn, as viewers realize there’s no way they’re watching all six of those services every month and will likely start to cycle through them, letting subscriptions lapse for a few months until a particular service has something on that they want to binge.

That’s not good news for Netflix.

While we love and enjoy Netflix, their value proposition probably comes in at number three or four among the Flixes.

Disney, with its family-friendly programming, Hulu with its deep library and ability to catch up on network (e.g. non-Flix) programming, and Amazon, with its free two-day shipping, all would seem to have more compelling value propositions for many consumers.

That’s likely to be compounded when Warner, NBCU, Fox and others start pulling back all the library content (e.g., Friends) they’ve been licensing to Netflix over the years.

And by the fact that their all-at-once delivery system means they have much, much, much shorter windows in which to promote all that new programming than if episodes were released weekly.

Which is not to say we’re predicting that Netflix is going to go under or that it’s in any sort of trouble. Just that its position as the unassailable market leader is no longer assured and that they're going to be facing a lot more competition to come up with the shows that capture the popular imagination.

At the risk of sounding like a broken record, television is more an art than a science, and so even with the Best Data In The World, Netflix isn’t assured of creating hits. What’s more, in a year where $15 billion worth of original programming is being introduced, we’re betting that people will gravitate to the shows everyone else seems to be watching, rather than devote time watching a show that may be well targeted for them personally, but which no one else they know seems to be watching.

Two final points about Netflix’s price bump:

(A) We’re imagining the people in charge of figuring out pricing at Apple, Disney and Warner are busy reworking their spreadsheets this week, given that their pricing models likely used the monthly price of a Netflix subscription as a starting point.

(B) Hulu gained a whopping 8 million subscribers in 2018, bringing the grand total to over 25 million. While Hulu has a lot to offer viewers in terms of originals, library content and recent network programming, the fact that the ad-supported version is normally only $8/month and the service ran specials where it was as low as $6/month seems to indicate that consumers are at some level price sensitive and that the new Flixes will need to figure out where that inflection point is.

What You Need To Do About It

If you’re a competitor, you'll want to re-examine your prices.

If you’re an overseas competitor, you'll want to get your act together since Netflix seems to be whooping your butt,

And if you’re a viewer, get out the popcorn, it's going to be an interesting 2019.

 

2. NBCU Launches An OTT App

In what was largely seen as inevitable, NBCU announced that they would be launching an OTT app in 2020. While details were sketchy, it seems that the app will be free to Comcast and Sky pay-TV subscribers, available for cash money to the Comcast-less and Sky-less, and it was unclear in which camp Comcast and Sky broadband-only subscribers would fall.

The app will feature NBCU content and originals, but which content and how many billions worth of originals is anyone’s guess.

Why It Matters

NBCU is taking the safe road. By giving the app away to Comcast’s pay-TV customers, it’s hoping to not cannibalize that business (good luck!) and by charging everyone else and getting their credit card data and IP addresses, it can add to the amount of first-party data it currently has.

Coming in a year after everyone else can be risky—loyalties have been formed—but it might also work if viewers are underwhelmed by the existing Flixes, and if what NBCU introduces looks a little different and doesn’t repeat the same mistakes as everyone else—they have the chance to be the "new kid" and maybe even get a little buzz out of the launch.

It’s particularly unclear what is going to be on the new app—NBCU’s Steve Burke seemed to be purposefully vague about what they’d continue giving to Hulu and what they’d be holding back, though he indicated that they weren’t selling their share of Hulu to Disney.

At least not this month.

So there’s that.

On the plus side, NBCU has a lot of recognizable programming: NBC, MSNBC, USA, Bravo, SyFy, Oxygen and Universal Pictures. It’s the sort of package that's going to appeal to a of broad array of consumers, and that’s before they throw in the originals.

What You Need To About It

If you’re a production company, get your pitch ready.

If you’re one of the other Flixes, don’t let your guard down in 2020.

If you’re CBS, hope that the Viacom merger happens and you can put CBS, Viacom and Showtime into an app to rival NBCU.

If you’re everyone else, once again, just grab the popcorn.