The move may have delighted its board, shareholders and Wall Street but Netflix's fee increase is set to test severely the loyalty of not only its subscriber base but also short-term price ceilings for the subscription video-on-demand (SVOD) market in general says analyst TDG.
On 15 January 2019 Netflix announced that it is raising monthly fees for its US subscribers with prices for its popular standard plan, which allows streaming on two devices at the same time, will rise to $12.99 per month from $10.99.Yet while analysts and investors have argued over the past few months that a small price rise would be both necessary to deal with free cash issues and acceptable to customers, TDG warns that while subscriber reaction to Netflix's recent price increase varies relative to degree, even minor variations may have significant implications.
The analyst calculated in December 2018 that at a rise of $1 more per month, 16% of Netflix subscribers would be likely to either downgrade to a lower tier or cancel Netflix altogether. Anticipating an increase in 2019, TDG also tested in December price sensitivity toward monthly Netflix cost increases.
The Quantum Video Behaviour research found that Netflix subscribers were split into three exclusive groups, with each asked of their likely intentions should the cost of service increase by either $1, $3, or $5 per month. Each respondent answered for only one random price assignment.
At an increase of $1 per month, 8% of Netflix subscribers say they would downgrade their plan, with 8% saying they would cancel service altogether. At an increase of $3 per month, the rate of likely cancellations doubled, while the rate of likely downgrades nearly tripled. At an increase of $5 per month, the rate of likely cancellation increased another six points (38%), while the rate of likely downgrade increased only three points (17%).
While TDG believes that Netflix will endure any short-term backlash from these increases, it is undoubtedly reaching a level of price resistance across all tiers, observed TDG president Michael Greeson. “At an average increase of $3 per month, 33% of Standard tier subscribers are likely (though not certain) to downgrade to a less expensive plan and 10% are likely to cancel the service altogether, compared with 28% and 6% of Premium tier subscribers, respectively. These variances are not insignificant.”
Greeson added that other SVOD providers should pay close attention to these results, as they set a benchmark for the entire SVOD market space. “Netflix is the most highly valued SVOD service and enjoys the most loyal subscribers. As such, if it encounters resistance at these pricing levels, undoubtedly others will, as well.”
