The UK Office of National Statistics (ONS) has added Netflix, Inc. (NASDAQ:NFLX) and other video streaming services to the basket of goods that it uses to calculate the consumer price index (CPI) this year in its annual review. Since CPI has to reflect the changing costs that people face, it is rebalanced every year to have a more accurate mix of goods and services that people normally buy.
Video streaming replaces DVD internet subscriptions in UK CPI
“Video streaming services are being added as part of a combined DVD rental/video on demand subscription services item to reflect the trend of consumers turning more to downloads for watching films and TV programmes. The combined item replaces DVD rental internet subscriptions,” says the report. DVD recorders were also removed from the CPI mix as part of the same trend away from DVDs and toward online video.
Despite all the characteristic (maybe caricatured) differences between American and British television, Netflix, Inc. (NASDAQ:NFLX) has had a lot of success expanding into the UK, hitting 1.5 million subscribers last year. Inclusion in the CPI is a form of mainstream acceptance, since it implies that this is a typical cost that shows up in enough Brits’ budget to merit government attention (though the ONS also added birdseed to the CPI basket this year, so maybe investors shouldn’t get overly excited).
Netflix prices get an atypical amount of media attention
While consumers are certainly spending more on video streaming now (the service wasn’t even available a few years ago) it does seem like an odd way to measure rising costs. If Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) keep their prices the same then the entire category will reflect no change to prices, but most products (like birdseed) have a large number of producers who can tweak the prices without worrying about a backlash.
But the mere speculation that Netflix, Inc. (NASDAQ:NFLX) will raise its rates leads to lots of online back and forth, like a recent Motley Fool article that aimed to debunk the idea of a looming price hike. With so much public pressure not to raise prices, including Netflix, Inc. (NASDAQ:NFLX) in the CPI basket seems like it will hold the rate of inflation down because of one company’s very particular status in the public eye. No doubt the effect will be tiny (every item in the CPI carries a different weight), but it still seems like an odd inclusion.