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Is Netflix’s Projected Subscriber Loss Premature?

29 Aug, 2011 By: Erik Gruenwedel

New poll data suggests 60% price increase for combined streaming and disc rentals starting Sept. 1 may not result in expected mass subscriber exodus

With Netflix’s rate increase set to begin this week, indications are the projected departure of millions of subscribers might not materialize, according to a new poll.

Indeed, the number of subscribers leaving the service could hover around 10% from an ongoing poll with more than 4,000 respondents commissioned by HackingNetflix.com. Media reports and some analysts contend about 2 million subs will terminate service. By comparison, Netflix lost 3.5 million subs during its most recent quarter via normal operations -- a figure offset by 5.3 million subscriber additions.

Nearly 42% said they would opt for the $7.99 streaming-only plan, while 33% said they would stick with the hybrid $15.98 streaming and disc service. Another 11.5% said they would only rent discs (starting at $7.99) while nearly 3.5% said they would put the service on hold.

When Netflix first announced the rate increase in July, a similar poll with more than 11,000 respondents found that more than 33% said they would quit the Los Gatos, Calif.-based service.

More than 32% said they would choose the streaming-only plan, while nearly 20% said they would choose the more expensive hybrid model. More than 4% said they would seek an alternative rental service.

With many subscribers’ monthly plans billing in late August, the actual rate increase wouldn’t appear on their statements until late September — resulting in delayed action (including termination) on their accounts.

“I’m procrastinating until I see my September bill,” wrote Aka Darrell — a sentiment shared by numerous others in the comment section related to the poll.

Netflix sub Lars Barlow wondered if anxiety toward the rate hike amounted to more perception than reality.

“I think it's strange how I am too cheap to pay [for] anything more than just 1 disk and streaming,” Barlow wrote. “The price increase doesn't bother me even a little. But for some reason adding Blu-ray for $2 [a month] seems like too much. It's like buying a smartphone. I'll spend $200 on a smartphone, but you better not charge me [99 cents for] an app!”

Michael Pachter, analyst with Wedbush Securities in Los Angeles, said the drop in subs would be mitigated by the lack of rental alternatives offering similar price points in digital and physical distribution.

Pachter believes the number of Netflix subs downgrading their plans to less expensive options will be greater than projected.

“[Netflix seems] to think that around 30% of subscribers will trade down; I think that number is closer to 50%,” Pachter said.

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