Netflix finds win-win in price hikes as ads and revenue surge

Netflix maintains a strong position despite losing the Warner Bros. bidding competition.

Industry analysts are optimistic about Netflix's future prospects for its upcoming first-quarter earnings announcement on Thursday, as it shifts away from purchasing HBO by asserting its pricing authority and increasing its developing ad business.

This positivity follows what could be a strategic move by the streaming behemoth: raising rates once more.

When people on Netflix's ad-free package pay an extra $2 monthly, the company generates more income. 

Netflix predicts revenue growth reaching up to 14% in 2026, which Wall Street considers achievable.

And if users decide that $19.99 a month for the standard plan or $26.99 for premium is excessive, there's an option to switch to the $8.99 ad-supported plan, comparably priced with the Paramount+ ad plan and more affordable than similar offerings from Disney+, Hulu, HBO Max, and Peacock.

"By utilising a competitively low-priced ad-supported service, Netflix can assertively increase top-end prices while regaining subscribers looking to decrease their monthly costs," analyst Robert Fishman from MoffettNathanson stated in an April report.

Even though customers might complain about rising streaming prices, there's reason to believe they're not likely to abandon Netflix. 

The streaming service has historically had one of the lowest cancellation rates in the industry, recorded at 1.7% in the US as of February, according to subscription analytics firm Antenna. 

Additionally, Netflix offers great value per hour of consumption, as noted by UBS researchers last year.

"We believe there's more potential to raise subscription charges than most estimate," stated Luke Stillman, an analyst at the advertising research firm Madison & Wall. "Every time we see subscription fees increasing, cancellations are fewer than anticipated, showing low sensitivity to price rises."

By raising prices, Netflix potentially gains an additional advantage: boosting its ad-supported category.

The top ad businesses are those with scale, enabling advertisers to reach vast, varied audiences simultaneously. 

If Netflix achieves enough growth in its ad-supported category, it can request higher advertising rates and attract substantial brand partnerships, said Mike Proulx, marketing research director at Forrester.

Proulx suggests that Netflix's recent price increases are tantamount to "price pinching," pushing ad-free subscribers toward the ad-supported plans to achieve the desired scale in its ad business.

Some market experts dissent, pointing out that Netflix's ad-supported subscribers provide less revenue than its ad-free clients.

Netflix has projected a doubling of its advertising revenue this year, from $1.5 billion in 2025 to about $3 billion.