Thursday, 7 January 2021

"Netflix raises UK prices to cover cost of content"

The usual slightly weird reporting from the BBC:

Netflix is raising the cost of some of its UK subscriptions from next month, its customers have been told. The streaming service said the price rises reflected money spent on content.

Netflix is a superb service and their (few) original series are pretty good. I don't like all of them, but there a couple of good ones each year (and lots of people watch 'The Crown', sigh). The price they charge reflects purely 'what they can get away with' and has little to do with what they spend on original content. I'll pay to watch something if I like it, I couldn't care if it was done on a shoestring or it costs £ millions per episode. Clearly, for the bought-in content, the IP owner holds out for a large chunk of the income, so that's probably pretty low margin.

Its standard monthly package will go up from £8.99 to £9.99 and its premium one will rise from £11.99 to £13.99, but its basic plan remains at £5.99*.

So still superb value, then?

However, comparison site Uswitch said the timing of the price rises was unfortunate with UK citizens living under new national lockdowns.

Supply and demand. The lucky majority who still have jobs are spending a heck of a lot less on other fripperies, so they have more to spend on streaming services, computer games etc. And if I get the sack and have to live on a tight budget, Netflix will be one of the last things I cut back on. So Netflix can bump up their prices a bit. So far, the business has not been particularly profitable, so good luck to them.

But Netflix faces tough competition from rivals, such as Disney+, which has also announced price rises of £2 per month up to £7.99 or £79.90 for a full year.

There's also good old fashioned terrestrial TV (yours for the price of a TV licence); Amazon Prime (about £6 a month, but which is shit); some cable/satellite TV channels (which seem to be very expensive); and there is loads of stuff on YouTube (free). So there's more 'tough competition' than you can shake a remote control at.

* I originally only subscribed to Netflix so that The Lass could watch 'Riverdale', which was all the rage in her class at school for a while, so basic package £5.99. Then the rest of the family got into it (including me) and found stuff they liked, so we're now on £9.99 for two screens. Even that's not always enough, and I sometimes have to pull rank and chuck out one of the kids.


Staffordshire man said...

ometimes have to pull rank and chuck out one of the kids.

Love it

Bayard said...

Sigh, the myth that all commerce works on cost-plus will always be with us.

Mark Wadsworth said...

SM, ta.

B, in reasonably competitive markets, it does boil down to cost-plus and it's a handy way of estimating things.

There are plenty of businesses which make super-profits, that is usually a sign that they are not in a competitive market.

mombers said...

Streaming services are not a market that everyone is forced to participate in, unlike land or water, so no need to be concerned too much about competition. If there is anti-competitive behaviour like price fixing, the damage is so much less than anti-competitive behaviour in land and water. There's no competition possible in either. Water is sorted out by regulating the monopoly to cost plus*. No attempt made in the land market and the predictable and tragic consequences are easily observed...

*Regulatory capture means we pay more than that in theory but not 3 figure excess profits

Lola said...

Mombers. Anecdote time. The water market. In a previous life I was a civil engineer. One of the jobs I worked on was a denitrification plant for Anglian Water. The blokes on the ground were employed by a 'term contractor' to AW. A term contractor is one who carries out various ongoing maintenance and repair jobs based on - usually - a set of agreed rates - sort of cost plus. When the term contract ended and was sent out for new bids, and Term Contractor A was out bid by term contractor B the blokes just moved contractor. Nothing much changed on the ground. Maybe different vans with different livery.

Don't quite know why that is germane to this post, ii at all. But it amused me at the time.

Mark Wadsworth said...

M, correct and agreed. Sky cable or satellite TV is outrageously expensive and not worth £50 a month. If it were £5 a month, I'd have signed up long ago.

L, that happens a lot. I think it happens with rubbish collection. Winning bidder buys the lorries from the previous incumbent, repaints them, takes on all the binmen and binwomen, life continues as normal.

Bayard said...

"There's no competition possible in either. "

That's not true for water. Competition would be possible in the water market if there was a "water grid", the pipes were owned by the state and the water companies paid to use them. The market for water would then be the same as the market for electricity or broadband. Sewerage, however, is always going to be a geographical monopoly.

Bayard said...

"B, in reasonably competitive markets, it does boil down to cost-plus and it's a handy way of estimating things."

I'd say the opposite. It's only cost-plus when all increases in input costs can be passed on in full to the consumer, which to my mind is the antithesis of a competitive market.

Mark Wadsworth said...

B, no.

Cost-plus is seen in two areas

- cushy government contracts, where the supplier can spend as much as he likes and invoice cost-plus a percentage. Most famously seen in US military-industrial complex.

- competitive markets. If one business tries to charge more, he loses his customers. So prices tend to drop to give a modest profit margin, high enough to keep businesses in business but not so high as to attract new entrants.

If input costs fall, then businesses reduce prices to try and pinch customers from each other. It input costs go up, then they HAVE to increase prices or they will make losses and go out of business. And so on.

This is not some neoliberal economist fantasy, it is easily observable (supermarkets, mass car manufacturers,).

Bayard said...

Your two areas are not comparable. The first is cost plus. This is how an awful lot of people think the entirety of business is run. The selling price is determined solely by the input price.
The second isn't cost plus. OK, it approximates to it, but the selling price is determined by the competition, not the input price.

In the first scenario, Business A makes widgets for the MOD out of steel. His steel supplier goes bust and he has to find another supplier, who charges more, so his selling price goes up to reflect this. His margin remains the same.

In the second scenario Business B makes widgets out of plastic for the open market. His plastic supplier goes bust and he has to find another supplier, who charges more, but he can't alter his selling price, because all his competitors are not altering theirs and he would lose sales. His margin reduces.

Mark Wadsworth said...

b: "The second isn't cost plus. OK, it approximates to it, but the selling price is determined by the competition, not the input price."

It approximates to it, that's good enough. Costs are costs, the point is that profits are eroded to the "plus" bit and that "plus" is quite small.

If Supplier B can't buy plastic as cheaply as his competitors, clearly his profits go down (or he makes a loss). But we assume that in the open market all widget makers are paying roughly the same for plastic.

So if cost of plastic goes up, price of widgets goes up. If consumers aren't prepared to pay the higher price, fewer are bought, a couple of widget makers stop making widgets, the old profit margin is reinstated.