Netflix accepts that losing approximately 480,000 customers is a necessary sacrifice if it means earning an additional $520 million in annual revenue. While the top video subscription service is dealing with the blowback on behalf of their subscribers, they explained their rationale in a press release.
Besides rejoicing in their new logo icon, Netflix regrets having to increase prices for their long-term customers. However, they revealed that this has been part of the plan for quite some time. Nomura Securities analyst Anthony DiClemente admitted in a research note:
We note that this has long been a tenet of our investment thesis on the domestic business, as slowing subscriber trends are more than offset by increased monetization.
An estimated 27 million of Netflix streaming subscriptions based in the US have either already witnessed the price increase that started in May or will feel the effects shortly. There is a middle ground as subscribers can opt for the standard-definition single-stream plan, which will remain available at $7.99.
For the popular two-stream HD plan, prices that increased by $2 (from $7.99/month to $9.99/month) are estimated to result in 2% subscriber churn rate. It's estimated that those who signed up for the $8.99 HD plan at $8.99 (after increasing the cost by $1 to $9.99/month in October) will have a churn rate of about 1%.
Netflix subjected their fans to a price increase in May 2014, and as we can see, subscribers tend to give in to demands when it comes to streaming unlimited commercial-free video content at their will. Nevertheless, Netflix has made a habit of giving you a taste of the good stuff and ripping it away — as it does with much of its content.
Other streaming platforms have much potential, but in many aspects they do not compare. After all, it's called Netflix & Chill, not Hulu & Hook-Up or Amazon Prime & Arousal — 'cause that would be weird.
In the first quarter of 2016, Netflix had 81.5 million streaming subscribers worldwide, 47 million of which were located in the US. These numbers surely put those 480,000 cancelations into perspective.
The higher subscriber fees will allow Netflix to boost content spending from $5 billion this year to over $6 billion in 2017. This is good for any fans of Netflix Original content, such as Orange Is The New Black. Hey, those prisoners deserve food and amenities too!
Netflix will be changing up their library next month, so you might want to watch a few of these movies before they leave Netflix in July — some horror perhaps?
Do you think these price increases are reasonable?