Friday, May 9, 2014

Netflix Boosts Streaming Plan Prices, Grandfathers Existing Users for 2 Years

Netflix is increasing the price of its $7.99 a month U.S. streaming plan by one dollar, to $8.99 for new members.

Netflix also is adding a new $7.99 plan with standard-definition image quality viewing on any one screen at a time.

Current Netflix members get to keep their current price for two years, enjoying HD-quality movies and TV shows on any two screens at the same time.

Most observers would attribute the price increase to funds Netflix needs to create more original programming.

What remains to be seen is the impact on Netflix customer churn, and customer growth rates.

Subscription service price hikes often are troublesome in markets where there is significant competition, since customer defection is a possibility. And Netflix will over the next year or two find out what the higher prices do for take rates and churn.

In a recent survey, six percent of Netflix consumers who use the streaming service said they would cancel their subscriptions if the monthly price climbed by $1, a YouGov survey found.

Netflix ran into a huge problem when it repriced its services to emphasize streaming delivery in 2011.

Netflix lost about a million subscribers after the 2011 pricing change was announced, while the Netflix stock price plunged more than 80 percent before rebounding beginning in August 2012.

In that move, Netflix eliminated a popular “DVD plus streaming” plan costing about $10 a month, in favor of separate DVD rental and streaming plans each priced at about $8 a month.

This time around, Netflix will apply the higher charges only to new customers, grandfathering existing users for two years. That should effectively minimize any immediate churn potential.

And Netflix is not talking about potential 60 percent price hikes, but something more on the order of 13 percent on an $8 base.

Many would therefore suppose there could be some new friction on the new subscribers front, but almost no damage to the existing base of customers.  

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