Netflix suspended the free trial of its streaming service and increased subscription fees in Canada. It is expected that growth will slow in the second half of this year.
Netflix will announce its quarterly results next week. Before that, there was a guessing game in Silicon Valley: Are prices going up?
Netflix increased the monthly price of Canadian standard HD services from $14 in October to $15, and the monthly price of premium HD services from $17 to $19 . The market speculates that the same situation may also occur in the United States. Netflix quietly canceled the free trial and required a paid plan to gain access to its streaming service. Currently, the Netflix help center page now says that the free trial is “unavailable.”
Netflix did not respond to emails seeking comment on the two measures. Prior to this, Netflix’s subscriptions have grown substantially for two consecutive quarters. Netflix announced in its last earnings report that it added more than 10 million subscribers. The company’s executives said that the growth in the first half of this year was likely due to the outbreak of the coronavirus.
“As a result, we expect growth in the second half of 2020 to be lower than the previous year,” they wrote in a letter to shareholders in July.
On the second day after the report was released, the company’s stock price fell by 6.5%, because financial analysts worried about the decrease in new users and the company’s inability to provide users with complete content. However, analysts predict that the company’s nearly 200 million users will face higher prices, and the company’s stock price has risen sharply recently.
“Canada’s price increase supports our view that the overall price increase may be in the near future,” Jefferies analyst Alex Giaimo pointed out on October 8, reiterating the buy rating with a target stock price of US$570. It is estimated that Canada has about 7 million subscriptions, accounting for 4% of global Netflix users. (Netflix) usually adjusts prices every 2-3 years.
Netflix’s last substantial price increase in the United States was in January 2019, when the company increased prices by 13% to 18%, which was the largest increase since the company launched its streaming service in 2007. Netflix announced the price increase three days before the earnings announcement; the company is scheduled to announce its third quarter earnings after the close of business on October 20 (Tuesday).
Netflix executives are often asked about pricing recently. In the first-quarter conference call with analysts in April this year, CFO Spencer Neumann said bluntly: “Right now, we really haven’t considered this issue, and it’s not time for us to consider price changes. “
But three months later, during the Netflix second-quarter conference call in July, this tone softened.
“Looking forward, I would say that each country (in terms of pricing) is in a different model. Therefore, over time, we will continue to evaluate a range of different factors,” said COO Greg Peters. “We will We will examine the country’s macro factors one by one. We will also pay close attention to our specific indicators, such as participation and churn rate.”
During the coronavirus pandemic, the number of subscribers of Netflix has surged, but it has now entered a plateau. In the competition between Disney (126.81, -0.55, -0.43%) and Apple (119.02, -1.69, -1.40%), Netflix may need to inject revenue to maintain and expand the scale of the program. The share prices of Comcast, AT&T, Comcast, and AT&T are all rising. Analysts surveyed by FactSet expect the company to earn $2.12 per share and revenue of $6.37 billion. They expect that in the third quarter of this year, global paying subscribers will only increase by 3.55 million, while Netflix’s paying subscribers in the previous two quarters have exceeded 10 million.
Giaimo wrote in a report last week: “Although (streaming) competition has indeed intensified since Netflix’s last price increase, we have noticed the recent delays in the release of Hollywood movies and other entertainment projects (concerts, Dramas and sports events) continue to close, increasing the demand for Netflix content.” “Hollywood stars themselves (actors, directors, screenwriters, etc.) may consider producing more Netflix content to maintain the demand for eye-catching and exposure.”
During the coronavirus pandemic, competitors provide services that are free or below the price of Netflix, which undoubtedly means higher risks. On Monday, Disney announced a major reorganization to shift the company’s media and entertainment business to streaming media. Movies such as “Mulan” and “Hamilton” are all premiered in Disney+, not in theaters, and the monthly cost is $6.99.
Last week, Apple confirmed to CNBC that the company will extend some free trials of Apple TV+ until February next year. When the streaming service was launched in November 2019, it bundled a one-year free subscription with the purchase of Apple products to increase the number of people watching the streaming service.
Disney and Apple increase the proportion of future streaming media in the company’s development, which is worth noting for Netflix. However, with the ongoing coronavirus pandemic leading to production shutdowns, it is expected that Netflix’s new content channels will gradually decrease, and the company may lose its lead in content in the first few months of the pandemic.
The company’s executives also said the same when reporting earnings in July.
Netflix executives said in a letter to shareholders: “We don’t think competition is a factor, because there was no substantial change in the competitive landscape in the second quarter, and the intensity of competition and our penetration rate differed in different regions (although we The forecast for each region is too high).” “On the contrary, we believe that the second quarter’s contribution to the net increase in payment is lower than our expectations.”
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