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Study: Netflix Rate Hike Could Lead to Mass Subscriber Cancellations

A new study claims that sticker shock could cause hundreds of thousands of loyal U.S.-based Netflix customers to cancel their subscriptions to the popular streaming content provider.

In January 2014, a high-definition Netflix subscription cost customers $7.99 per month. By May of that year, Netflix had already began raising its prices, first to $8.99, and then, five months later, to $9.99 for all-new subscribers. Pre-existing users were grandfathered in to their original $7.99 plan, with the promise that their service price would never change. That promise was apparently broken in April when the company announced in a letter to investors that it would “phase out this grandfathering gradually over the remainder of 2016, with our longest­ tenured members getting the longest benefit.”

Last month, Netflix began slowly raising prices on nearly 30 million subscribers — a move that Nomura Securities analyst Anthony DiClemente says could force nearly a half million users to drop the streaming service for good.

“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,” DiClemente concluded in a study published Monday, according to Variety. 

As of April, Netflix’s subscriber base sat at 81.5 million users worldwide,with more than half residing in the U.S.

Since it’s launch in 1997, when it was a DVD-to-home rental service, Netflix has expanded its service into 130 additional countries and 190 territories worldwide.

The company says it expects the price increase to produce “modestly increased churn,” but adds that the $520 million per year in expected additional revenue to Netflix will be worth any losses that might result from the price hikes.

“Thematically, international net subscriber additions headwinds may be somewhat offset by a better narrative surrounding revenue benefits from price increases in the U.S. throughout the remainder of 2016,” DiClemente said.

Netflix’s decision to increase its service fees come as the company says its looking to increase its spending on production from $5 billion this year to $6 billion in 2017.

 

Follow Jerome Hudson on Twitter @jeromeehudson

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