3 Companies Paying the Price for Raising Prices in 2019

There was more than the usual bravado emanating from some of the biggest brands in media entertainment earlier this year. Netflix (NASDAQ: NFLX), Disney (NYSE: DIS), and AMC (NYSE: AMC) boosted prices for some of their flagship offerings in January, figuring that the booming economy and their market leadership positions offered them a fair degree of pricing elasticity.

The market applauded these moves at the time. Netflix, Disney, and AMC were setting the stage to cash in on the popularity of their offerings. Margins would expand. What could go wrong? Well, a lot has gone wrong. Let's go over how the three companies overplayed their hands in 2019.

Mad Hatter, Rabbit, and Alice in Wonderland in front of the Mad Tea Party at Disney World's Magic Kingdom.

Image source: Disney.

Plot twist

Let's start with Netflix. The world's leading premium streaming video platform had pulled off three price hikes in the four previous years without missing a beat, so flexing its pricing muscles didn't seem like a risky move. The service now costs 63% more for its most popular plan than it did five years ago, but Netflix is also spending 140% more on content. 

Things seemed to go along swimmingly during the first quarter, but then a one-two punch rocked Netflix in the second quarter. It closed out the period with just 2.7 million more global streaming paid subscribers than it had at the beginning of the quarter. Netflix was targeting 5 million in net adds. It was the first full quarter with the price hike in effect with most of its existing members on the new pricing by April. It also didn't help that Disney and Apple announced new platforms would launch later this year. With Disney+ and Apple TV+ set to launch in November at $6.99 and $4.99 a month, respectively, some folks could be hesitant about shelling out $12.99 a month for Netflix until they see what the rival services look like. Netflix thought it was lifting the ceiling on pricing earlier this year, but it was actually giving hungry upstarts more headroom to start a price war.

As aggressive as Disney is rolling with its upcoming streaming video service, it's been a serial price hiker at its theme parks. In Disney World alone, Disney has revised at least some part of its admission pricing higher every year since 1988. There's general bellyaching, but Disney also proved mortal in the same three-month period when it reported a surprising decline in theme park attendance for its domestic attractions. Despite the arrival of Star Wars: Galaxy's Edge at Disneyland over the Memorial Day weekend and the first springtime of availability for Toy Story Land at Disney World, Disney failed to grow its turnstile clicks since the prior year's fiscal third quarter. 

To be fair, pricing was just one of the levers that Disney tweaked to make the opening of the Star Wars-themed expansion more orderly. Since shifting to demand-based tiered pricing and blackout periods for more of its passholders kept visitors away during the summer, Disney will likely rethink how ambitious next year's price hikes will be.

Finally, we have AMC figuring that it could bump the prices for its fast-growing multiplex subscription service higher halfway through its rookie season. The end result is that AMC Stubs A-List growth has decelerated since the increase, but the stock itself is being rocked by several other factors that are more industry-specific than a single pricing strategy. 

"Great companies with good audiences can get away with pushing through higher prices," I argued in January, but now AMC, Disney, Netflix, and my initial assessment have been humbled by the market's reaction. There are limits to consumer discretionary spending, and all three of those companies flew too close to the sun this year. 

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Rick Munarriz owns shares of AMC Entertainment Holdings, Apple, Netflix, and Walt Disney. The Motley Fool owns shares of and recommends Apple, Netflix, and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.

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