After first-quarter results that beat Wall Street expectations, Netflix is thinking about more price hikes, but not any time soon.
During Monday’s earnings interview, Netflix CEO Reed Hastings increasing the average selling price for Netflix depends on the quality of Netflix’s offerings as compared to those of competitors.
“You really have to earn it first by doing spectacular content that everybody wants to see,” Hastings said. “But if you do that you can get people to pay a little bit more because then we’re able to invest more and further improve. But we always approach it on a ‘have we earned more viewing from people’ basis first rather than a price-first basis.”
In several territories last year, Netflix raised the price of its standard service from $9.99 to $10.99 per month, and the price of its premium tier increased from $11.99 to $13.99 per month.
There was some concern from investors that the price hikes could lead to increased subscriber churn. But in the two quarters since the increases were announced, Netflix has surpassed estimates for net subscriber additions. Netflix added about 8.3 million net new subscribers in the fourth quarter of 2017 after it predicted it would add 6.3 million. And in the most recent quarter, Netflix brought in 7.41 million net new subscribers, well ahead of its 6.35 million net adds forecast.
Part of Netflix’s continued growth strategy has been partnering with pay-TV distributors. Netflix said investors can expect the company to continue signing distribution deals with traditional MVPDs as a means of reaching new audiences and making it easier for those audiences to sign up for Netflix.
“We’ve seen the economics of those [deals] and taken the retention and acquisition characteristics to be very, very beneficial,” said Netflix Chief Product Officer Greg Peters, referring to recent distribution deals with Comcast and Sky. “You’ll see us leverage that evolving strategy not only in the markets that we’ve been in for many years but also in new markets.”
The most significant aspect of Netflix’s growth strategy is continuing to aggressively invest in content. This year, the company intends to spend between $7.5 billion and $8 billion on content and another $2 billion on marketing. And the majority of that budget is going toward original content.
Netflix Chief Content Officer Ted Sarandos said that the company has been investing more in original content not only because it’s helping grow the business but because licensed content is getting harder to come by.
“The ecosystem that produces that content that we’re buying in second and sometimes third windows isn’t producing content at the level of demand and quality that it had been over the years,” Sarandos said. “So the things that we’re engaged in bidding on are more selective and there’s less of them.”