Covid-19 presents Netflix with chance to hike prices

01 July 2020 3 min. read
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The need to constant entertainment among lock-down has presented streaming services like Netflix with a golden opportunity to increase their prices, according to a new survey. Customers would now be five times as likely as before to tolerate a 10% hike, as long as the breadth of a streaming service’s content was improved.

As broadband and 5G coverage has improved and its costs fallen, while the processing power of mobile technology has also ramped up, most consumers have been more than happy to put the technology to use in their daily search for entertainment. As a result, the global entertainment streaming market has enjoyed a sustained boom over the last decade.

Video subscription services like Netflix – which have driven growth by similarly creating a range of services for customer groups with different needs – have performed best in this new environment, but new competitors including retail heavyweight Amazon and established media behemoth Disney have also tapped into the market with their own streaming services. Many experts expect one or all of these services will make the leap into video game streaming in the future, while the UK’s streaming market alone was already expected to double in size to £16 billion by 2023.

Covid-19 presents Netflix with chance to hike prices

According to a new study from Simon-Kucher Partners, however, the likes of Netflix might be about to cash in on their growing subscription base even quicker than expected. If anything, streaming may be the only service which will come out of the Covid-19 crisis stronger than it went in, as the researchers determined that Covid-19 and its resulting restrictions on public life have significantly changed customer behaviour.

The global strategy and marketing consultancy Simon-Kucher & Partners has measured willingness to pay for Netflix among MBA students, examining the topic of streaming services across Europe, Asia, North and South America, Middle East, and Australia and New Zealand. Across the board, what the analysis found was that Netflix’s pricing power has increased dramatically, and while in the past, a 10% price hike would have resulted in a 6% decline in demand, the survey shows that the same 10% spike would only drive 1.3% of customers away now.

Commenting on the results, Mark Billige, CEO of Simon-Kucher & Partners, said, “The results indicate that price elasticity for streaming services is at an all-time low… For the past three years, the calculated price elasticity for a Netflix subscription was approximately -0.6. But in our June study, we saw elasticity collapse to just -0.13. That means that for the same theoretical price increase, volumes would now only fall by about a one-fifth of what we would have expected in the past.”

When asked to rank the most important criteria for choosing between different streaming services, breadth of content available and access to latest releases were the first and second most important criteria, whereas price was only fourth in importance. This suggests that Netflix would have room to raise its prices, and still rely on strong sales volumes – though Billige cautioned against ramping up prices without due care.

“While we would need to conduct a more representative study before making any concrete recommendations on optimal prices, these results send a very positive message to streaming providers. Consumers are currently having a crash course in what they can (or can’t) live without. And streaming services are definitely in the ‘can’t live without’ bucket,” he added.