Subscription VOD (SVOD) leader Netflix has begun to phase out its grandfathered subscription prices in the US – raising monthly rates for some subscribers by as much as $2, from $7.99 or $8.99 to the current price of $9.99.
The move could give the streaming giant as much as $520 million of additional revenue per year, according to Nomura Securities analyst Anthony DiClemente, in an analyst note. But, the company could see subscriber flight, seeing almost a half-million (480,000) US subscribers cancel (that’s a 1% to 2% churn rate). DiClemente also cut his price target on Netflix from $125 to $115 per share.
The company in 2014 told existing subscribers that it was raising prices from $7.99 per month to $8.99 per month, but that the change won’t affect existing customers for two years.
Last October, it announced that it was further hiking the price of its most popular streaming subscription (two viewers at a time) by $1 a month to $9.99 for new customers in the US, Canada and parts of Latin America. A similar €1 increase for European subs was enacted last August.
No word was given to existing subscribers enjoying the grandfather clause that they, too, would be paying the $9.95 instead of the $8.95 originally promised. The emailed notification to subscribers was short and sweet – and unapologetic.
“When we raised prices for new Netflix members in 2014, we kept your price the same for two years,” the notice to this writer reads. “Your special pricing is now ending and as of 7/23/16 your new price will be $9.99 per month. Please visit netflix.com to review the details of this change and your options for plans and prices. To cancel your membership before the price change takes effect, you can do so at any time by going to Your Account. As always, if you have questions, we are happy to help. Please visit the Help Centre for more information.”
Pricing for the less popular one-viewer/no HD and four-viewer/4K plans have stayed the same. The ongoing hikes represent a calculated risk and make sense given that the company is spending around $6 billion this year on both licensed and original content. Netflix’ margins – or lack thereof – continue to be a source of concern on the part of Wall Street even as it continues to expand and find profit internationally.
It should be noted that CEO Reed Hastings recently said that he expects modest US growth; in fact, he expects to add another half-million subscribers in the US for the second quarter of 2016, which would balance out the losses from the price increases.