Why did Netflix impose price increases across its US plans? KPop Demon Hunters’ Oscar-winning hit “Golden” says: “We go up, up, up.”
It’s not rocket science. The equation is very simple. Invest in more content (Netflix aims to increase content cash spend by 10% to $20 billion in 2026), continue to increase profit margins by attracting and retaining streaming subscribers, and increasing retail prices.
The new pricing plan, which will take effect for new users starting March 26 and roll out to existing customers depending on their billing cycle, will increase the price of Netflix’s Standard plan (which has no ads and offers streaming on two devices simultaneously) by $2 from $17.99 to $19.99 per month. The ad-supported plan will go from $7.99 to $8.99 per month, and the top premium plan (no ads, stream on up to four devices at once, Ultra HD and HDR) will go from $24.99 to $26.99 per month.
But the question is, why now?
First, it’s hard to imagine that Netflix would have withdrawn this pricing lever, or the price increases for its approximately 86 million U.S. customers, if the deal to acquire Warner Bros. had still been in effect. The deal would have required approval from the Justice Department and other regulators, as David Ellison’s Paramount Skydance (the winning bidder for Warner Bros. Discovery) argues that the combination of Netflix and HBO Max would create a monopoly in the streaming industry.
Netflix strongly disputes this, arguing that with the addition of HBO Max, it would have captured about 21% of the U.S. subscription streaming market. But the idea that Netflix’s prices will increase amid the pending WB deal would be damning, especially after co-CEO Ted Sarandos testified in a Senate hearing that the deal with Warner Bros. will “give consumers more content at lower prices.” (Sarandos said Netflix will bundle its service with HBO Max at a discount.)
This graph from Wall Street analytics firm MoffettNathanson explains why Netflix is confident of gradually increasing prices in its largest market, without worrying about such appearance in the midst of a major M&A deal. Estimate the revenue streams generated in 2025 as a function of total viewing time.
In short, it shows that Netflix offers the best value for money among this cohort. Revenue per viewing hour is 48 cents, lower than any other service. This shows that Netflix not only has room for positive advertising revenue compared to other companies, but also room to increase prices from a competitive perspective.
Even with the new price increases, Netflix’s hourly viewing revenue metrics remain among the lowest in the industry (in the 50 cents per hour range). Analysts at Moffett Nathanson said: “Netflix offers great value to its subscribers, but there is room for it to become more monetized over time.”
Note that all of Netflix’s competitors have also increased their prices recently. Disney+ and Hulu, HBO Max and NBCUniversal’s Peacock raised prices last year, and Paramount+ increased prices in January. Next month, Amazon’s ad-free Prime Video slots (now called “Ultra”) will go up to $5 a month.
And Netflix’s new pricing, while higher, keeps it roughly in line with the rest of the field. In fact, its ad-supported tier remains cheaper than the Disney+, Hulu, HBO Max, and Peacock tiers (which makes it the same as Paramount+ with ads).
The launch of a cheaper ad-supported option, which Netflix first introduced in November 2022, has been an important tool in mitigating cancellations as the price of its standard (ad-free) plan increases. Instead of offering customers a take-it-or-leave-it price increase, Netflix can now steer standard package customers to lower-priced packages with ads. In theory, the company doesn’t care about which plan you choose. The difference in subscription fees should be covered by advertising revenue.
Netflix executives have previously vowed not to implement the advertising model, claiming it resulted in a substandard user experience. But it’s clear that people are willing to put up with ad breaks if the price is lower. In the US, Netflix’s ad-supported standard plan costs half as much as the ad-free plan.
MoffettNathanson’s Robert Fishman said the streaming giant’s U.S. price increases reinforce its long-term strategy. The company is “maintaining a significant differential between the top and bottom tiers to maximize monetization of less price-sensitive subscribers, while driving price-sensitive customers to the still-nascent advertising tier, driving engagement and, in turn, advertising revenue,” analysts wrote in a research note on Friday. “The result is a ‘best of both worlds’ approach that captures value across the entire spectrum of the subscriber base, which should further increase margins for the large and profitable streaming services.”
Will some Netflix customers cancel because of recent price increases? Yes, of course. But calculations show higher profits overall, giving the company an even wider moat against its competitors.
Above: Sadie Sink as Max Mayfield in Season 4 of Netflix’s Stranger Things
Related article: U.S. household spending on streaming video services remains flat at $69 per month, 68% now pay for ad-supported plans
