Netflix price hikes could lead to customers bailing
LOS ANGELES - A truckload of Netflix subscribers may bail on the streaming service after the No. 1 subscription video service raises prices for long-term customers over the course this year.
About 27 million U.S. streaming subscriptions are seeing price increases for the most popular two-stream HD plan, which Netflix began rolling out in May. That could result in 480,000 customers cancelling their service, according to Nomura Securities analyst Anthony DiClemente. At the same time, however, the price hikes will lead to about $520 million in additional annual revenue for Netflix, the analyst estimated in a research note Monday.
"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 wrote.
Netflix ended the first quarter of 2016 with 81.5 million streaming subscribers worldwide, including 47 million in the United States.
In the U.S., Netflix is raising the price of the standard HD service for those previously paying $7.99 monthly by $2, to $9.99 per month. Customers who signed up for the HD plan at $8.99 following the May 2014 price increase will be rolled over to $9.99 in October. Alternatively, the affected customers will have the option of continuing at $7.99 for a single-stream, standard-definition plan.
The company has told investors that it expects "modestly increased churn" because of the price changes this year, and said the higher subscriber fees will let it boost content spending -- projecting that to rise from $5 billion this year to more than $6 billion in 2017 on a profit/loss basis.
"We will phase out this grandfathering gradually over the remainder of 2016, with our longest--tenured members getting the longest benefit," Netflix CEO Reed Hastings wrote in a the quarterly letter shareholders in April. "We are rolling this out slowly over the year, rather than mostly in May, so we can learn as we go."