Netflix CEO Reed Hastings and CFO David Wells defended a recent price hike for subscribers on the streaming service, pointing to an increase in content and value that comes at an additional cost.
Hastings said the hike was only for one particular group of subscribers, adding that Netflix maintained its $7.99 offering in both North American and European markets for those who wanted a standard definition package. The issue, Hastings said, is that with increased content, Netflix has to charge a fair offering that matches the value of the company.
“Price is all relative to value,” Hastings said. “We’re continuing to increase the content offering and we’re seeing that reflected in viewing around the world.”
Wells echoed Hastings’ statement, adding that “many investors have criticized us in the past for being underpriced.” Wells said that Netflix executives work under the “slow and steady” philosophy, meaning that as the original content library on Netflix continues to slowly grow, the value of what Netflix offers to its subscribers increases.
“We think we can grow that value and that price slowly over time,” Wells said.
Hastings said that Netflix is going to “take the spending up next year,” by growing its leadership team and expanding content. In the company’s third quarter shareholder letter, company executives confirmed they would spend between $7 and $8 billion on content alone. To put that into perspective, Netflix spent approximately $6 billion on original content in 2016 and is expected to spend close to $7 billion in 2017. That’s an increase of $1 billion that will go to licensing exclusive series and developing more original content.
Wells addressed the idea that because the company was getting ready to spend $8 billion on content that it would result in another price hike next year.
“There’s no timing correlation between our intent to grow content and to grow content spending and the price increases,” Wells said. “This has been planned for a long time and we’re sort of growing, slowly growing and planning the business steadily, so we’ve assumed we’re going to grow ASP (average selling price) slowly over time and we’re taking the content up with that as well.”
Wells also said these increases are being seen in markets, like North America and Europe, for a number of reasons. Wells said it didn’t make sense to increase prices in countries or regions where Netflix has only been for 18 months and hasn’t curated content toward. That may not remain true in the future as Netflix builds its global audience, but for now it is.