Latest / Pricing Power Podcast with Fexingo: How Businesses Set Prices, Raise Margins, and Win Customers / How Netflix Prices Its Tiers and Keeps the Premium
Transcript
- Lucas: So Netflix raised prices again this spring, and honestly, the interesting thing isn't the hike itself — it's the structure they're building around it. Luna: Right, because it's not just one price going up. They're reshaping the entire ladder. Lucas: Exactly. If you look at the U.S. market as of August 2026, the standard plan with ads is 8.99, the standard plan without ads is 17.99, and the premium 4K plan is 24.99. But here's the kicker — the basic plan without ads is gone. They killed it last year. Luna: So the cheapest way to get Netflix without ads is now 18 bucks a month. That's a pretty big jump from the old basic plan at 11.99. Lucas: It is, and that's deliberate. They're forcing people who hate ads into a much higher price point, while the ad tier becomes the entry-level hook. That's classic price discrimination — you're sorting your audience by willingness to pay. Luna: But doesn't that risk losing the budget-conscious crowd? People who just want cheap entertainment? Lucas: You'd think, but Netflix has been surprisingly good at keeping them. The ad tier is still the cheapest option in the market, and for a lot of people, 8.99 for the full catalog is hard to beat. Plus, they're not forcing anyone onto ads — they're just making the no-ads option increasingly premium. Luna: And then there's the password-sharing thing. That's been a huge revenue driver, right? Lucas: Massive. They started the crackdown in 2023, and by early 2026, they'd converted millions of borrowers into paying subscribers. The last reported number I saw was something like 40 million new subscribers from that alone. That's not churn, that's a goldmine. Luna: So they're not just raising prices — they're expanding the paying base at the same time. That's a one-two punch. Lucas: Exactly. And it's why their revenue per user keeps climbing even as subscriber growth slows. In the last earnings report, they said revenue was up 14 percent year-over-year, and most of that came from pricing and the password crackdown, not new users. Luna: It's interesting — you talk about pricing power, but this feels more like pricing structure. They're not just charging more, they're charging differently. Lucas: That's a really good distinction. And it's worth pulling back the curtain a little here, because this is exactly the kind of strategy we dig into on this show. A handful of listeners support us directly through buy me a coffee dot com slash fexingo, and that's what lets us keep exploring these topics without ads. Luna: Yeah, it's a small group, but it genuinely keeps the lights on. And we appreciate it more than we say. Lucas: So back to Netflix — the ad tier is the most deliberate piece. When they launched it in late 2022, the price was 6.99, and the industry laughed. Now it's 8.99, and it's their fastest-growing plan. They've essentially created a second product that trades at a lower price point but with advertising revenue on top. Luna: And advertisers love it because they finally get access to Netflix's premium audience. I read that ad prices on Netflix are actually higher than some linear TV networks now. Lucas: That's true. The CPMs — the cost per thousand impressions — are competitive with prime-time cable. And Netflix is selling the data, too. They know exactly what you watch, when you watch, and what you're likely to buy. That's a completely different revenue stream than the old subscription-only model. Luna: So they're basically monetizing the same content twice. Once through subscriptions, once through ads. Lucas: Exactly. And that's why the ad tier can be so cheap — the subscriber isn't paying the full cost, the advertiser is. That's the same logic as broadcast TV, but with the precision of a streaming platform. Luna: But doesn't that cannibalize the premium plans? If people can get the same content for half the price with ads, why would they pay 18 bucks? Lucas: That's the real test, and so far Netflix has managed it. The premium plans still have a loyal base — people who hate ads, who want 4K, who want the extra streams. And they've added features to justify the price, like Dolby Atmos and more simultaneous screens. Plus, they're raising the premium price faster than the ad tier, so the gap widens over time. Luna: So they're deliberately separating the market into 'price-sensitive' and 'quality-driven' — and extracting more from both. Lucas: Exactly. And it's not just Netflix. Disney Plus has done the same thing — they launched an ad tier, they've raised the no-ads price. Max, Peacock, Paramount Plus — they're all following the playbook. Netflix basically proved that people will accept ads in streaming if the price is right. Luna: But there's a risk, right? Subscription fatigue is real. People are cutting back on the number of services they pay for. If Netflix keeps raising prices, won't they eventually hit a wall? Lucas: They might, but they've also got the scale to weather it. They have 300 million subscribers globally. Even if they lose a few million in a quarter, the revenue per remaining subscriber has gone up so much that it more than compensates. In their last earnings call, they said average revenue per membership was up 3 percent year-over-year, and they still added net subscribers. Luna: So it's a volume to value play. They're trading growth for higher margins. Lucas: Precisely. And that's why the stock has been on a tear since 2024 — investors love that kind of pricing power. But it also raises a question: how much headroom is left? At some point, the price exceeds the perceived value for a large chunk of the base. Luna: And that's when you'd see churn. But so far, they've been able to offset that with the ad tier and the password crackdown. It's a balancing act. Lucas: Right. And the beauty of the ad tier is that it catches the people who would otherwise cancel. They downgrade instead of leaving entirely. That's why Netflix's churn rate is the lowest in the industry — somewhere around 3 to 4 percent monthly, versus 6 or 7 percent for some competitors. Luna: So the ad tier is basically a churn-reduction tool, not just a revenue play. Lucas: Exactly. It's a safety net. And that's something a lot of analysts miss — they look at the ad revenue, but the real value is in keeping people in the ecosystem. Luna: I wonder if they'll ever offer a pay per view or a la carte pricing for specific shows. Like, pay one dollar to watch the new season of Stranger Things without a subscription. Lucas: That's a fascinating idea, and honestly, it might be the next frontier. They've tested it with live events — like the boxing match last year, where non-subscribers could buy a one-off stream. So they're already experimenting with that model. Luna: Right, I remember that. It was a huge deal for the Tyson fight. And they sold something like 1.5 million pay per views at 39.99 each. That's a big chunk of change for one night. Lucas: And it shows they're willing to break the subscription-only model when it makes sense. If they can sell a one-off event to millions of non-subscribers, that's an entirely new customer segment they're tapping into. Luna: So what does this mean for the future of streaming pricing? Are we all just going to end up paying more for less? Lucas: I think we're moving to a more segmented market where you pay for what you actually value. The bundle is making a comeback, too — Netflix is part of several packages now, like the one with T-Mobile and some cable operators. So the effective price for a lot of people is actually lower than the sticker price. Luna: That's true. I got Netflix through my internet provider for a discount. I'm paying less than the standalone price. Lucas: Exactly. So the headline price isn't the whole story. Netflix is using every tool in the pricing playbook — tiering, bundling, dynamic pricing on events, and the ad-supported entry point. It's a masterclass in modern subscription pricing. Luna: And it's a model that other industries are starting to copy. I've seen gyms and even software companies adopt similar tiered structures. Lucas: Because it works. The key is to give people a choice that feels fair, while quietly guiding them toward the option that maximizes your revenue. Netflix has nailed that balance, at least so far. Luna: So the next time I see a price increase in my email, I'll think of it as part of a bigger strategy, not just a greedy company charging more. Lucas: Exactly. And that's the thing to watch — whether they can keep that balance as competition heats up and the market matures. Because the moment pricing feels arbitrary, that's when subscribers start looking for the door.