1:37pm PT by Tim Goodman
Critic's Notebook: Netflix and Hulu Price Changes Smartly Prep for 2019's Streaming Wars
It's yet another week of economics mixing with television, as rate hikes by Netflix and Hulu (which also had a simultaneous rate reduction on one of its tiers) got everybody worked up.
OK, let's be real clear on this: $13 for Netflix's middle tier, its most popular — HD quality, available to stream on two devices simultaneously — is a bargain. It was a steal at $11. And a lot of people won't seriously question its value until the price gets a lot closer to $20. I've been saying this for years.
So, no, that price hike is not a big deal for Netflix, whose stock rose on the announcement (and plenty of analysts still believe the price is too low).
Of course, everything is relative. Lots of people won't be able to afford the $16 top tier (four simultaneous steams) or the $13 middle tier. The lowest tier also went up a dollar, to $9. Some people might consider dropping down a tier or dropping the service altogether. But that kind of economic issue is true for all goods on the market, from bread to clothing, so let's go with the notion that the average American can in fact pay for one of those tiers.
Hulu actually lowered its most popular ad-supported plan by $2 to $6, which could scoop up some of those who drop off Netflix but will more likely just be a bigger incentive for new subscribers. Hulu raised the price of its Hulu + Live TV service (which taps into a much bigger economic and game-changing issue, cord-cutting, so more on that in a bit).
Netflix's price increase arrives in the same week that it became the first streamer to join the MPAA and the second streamer to have a best picture nominee for the Academy Awards, with Roma. (Amazon achieved the latter feat with 2016's Manchester by the Sea.) It would be ridiculous to assume that Netflix subscribers don't already see the value in a service that is moving heavily into feature film production, has already dominated the worldwide streaming audience and — this is crucial to the perception of its subscribers — seems to offer everything anyone would want to see, with tons of original content including comedy specials, kids' shows, animation, documentaries and Oscar-eligible movies.
That price hike? Not a big thing.
The Netflix and Hulu price hikes — and that smart Hulu price reduction — were timed to happen before the arrival of three major streaming services this year, from Disney, Apple and WarnerMedia. Next year will bring NBCUniversal.
It will also be interesting to see what happens at Sundance as it relates to streaming services buying movies. You don't need any tea leaves to read what's coming — more dynamic thrust to the streaming revolution that's already in progress.
And yet there still seems to be a narrative that price hikes could possibly stall Netflix's growth (well, sure, but not anytime in the near future, and by the time that does happen, it will be even more market-dominant) and questions over whether price hikes will force consumers to choose, for example, Netflix over Amazon, or Disney+ over Netflix, etc.
That's the wrong way to look at it — and not only because, in terms of logic, it's barely even rooted in the present. It's also disdainful of the future, which is a lot closer at hand than people in the industry seem willing to accept.
Again, all the signs are there for a seismic change in the industry. People aren't choosing just one streaming service; they are often choosing two or three. With three additional players entering the market this year, 2019 is shaping up to be the tipping point for that industry change, which I wrote about recently and will continue to explore because it's one of the biggest and most interesting stories in the TV business.
I used the NBCUniversal streaming announcement as the jumping-off point for that Critic's Notebook because it was a perfect example of corporate thinking in the now. Nobody likes change, and even if they think it's coming, they don't think it's coming now, so they make decisions based on what is working now.
But by the time NBCUniversal gets in the game (2020, allegedly) the ground will be shifting in unprecedented ways. That's why the least remarked upon element of these streaming price hikes this week was Hulu + Live TV, precisely because most people are unfamiliar with it. Entry-level streaming subscription — they get that. All things Netflix — they get that. But the Hulu + Live TV option is full-on cord-cutting stuff, like YouTube TV, PlayStation Vue and DirecTV Now (which, in fairness, are also not entities that most people are talking about, particularly if 80 percent of the country still has a cable package).
Hulu raised its Live TV rates right now because once Disney+, Apple and WarnerMedia get in the game, it'll be a "Google cord-cutting options" moment for millions of Americans, and the industry-redefining race will be on.
It's a smart move and, coupled with the $2 price reduction for entry-level streaming. With that strategy, Hulu just ingeniously prepped itself for the coming shift.
Netflix might not have taken the price leap that a lot of analysts hoped it would, but its price hikes are also smart moves, given that Netflix has no idea yet how the three new players are going to structure the pricing on their services. What Netflix didn't want to do was go to, say, $15 and discover that Disney+ was coming in at $11. All the content building Netflix has done through the years has generated enormous market advantage because that perception I mentioned earlier still exists with its subscribers — that it has everything they need. That perception of value can easily sustain a $2 increase.
You know what else was smart this week? Amazon standing pat. At roughly $10 a month for a yearly subscription (and $13 for a monthly one, if you have commitment issues), it's also a great value considering how deep its own bench is and how well its originals have done this year — not to mention being a player in original content as well as acquired feature films. Oh, and free shipping, of course. When more people realize that it's not just a place to shop but a huge player in the content game, subscriptions will rise.
And, more important to the industry as we move forward, Netflix and Hulu increases won't keep people from subscribing to Disney+ as well. All three 2019 newbies could be seen as must-have services. Imagine that. People are at least going to think about it — meaning that they are finally and seriously going to think about cutting the cord, because there will be an expanded market force pressing on their wallets.
It's the economics of change. Things are about to get (even more) interesting.