Remember when everyone was worried about Netflix’s rising content costs? These days, apparently, not so much. Yesterday Netflix committed to pay something likely in the neighborhood of $300 million for exclusive subscription VOD rights to Disney (BTIG Research analyst Rich Greenfield estimates it could be as much as $450 million in 2017 depending on the exact size and performance of Disney’s release slate) and its stock went up by more than 14 percent.
One reason it went up so much, apparently, is that a lot of people expect Netflix to raise prices to help offset the cost of the Disney deal. For the record, Netflix chief content officer Ted Sarandos told Harvey Weinstein at the UBS Global Media and Communications conference Wednesday, “We are not contemplating” raising the $8 a month price for unlimited streaming, which was something less than a Shermanesque denial.
Still, I suspect Netflix is not, in fact, contemplating a price hike, or at least doesn’t want to contemplate one. The Starz deal fell apart last year in part because Netflix refused to raise its price or create a new premium tier as Starz had demanded. The last thing Netflix wants to do is signal that it is willing to modify its own business model to accommodate content owners because there would be no end to where that would lead.
The reason I think Netflix wanted to get the Disney deal done and announced four years before the meat of it even takes effect, in fact, is to give itself time to use the deal as a lure to other studios and to build up its subscriber base in the meantime. It’s an big bet by Reed Hastings, to be sure, but given what happened the last time Netflix tried to raise prices, betting on the come probably seems less risky.