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Analyst Says Upcoming Netflix Price Hike to Increase Churn

4 Apr, 2016 By: Erik Gruenwedel

Netflix could see a 1% uptick in subscriber churn when more than 30 million grandfathered domestic subs see a $2 increase to their $7.99 plan on May 9, according to Wedbush Securities analyst Michael Pachter.

Netflix raised its monthly fee $1 for new members last October to $9.99. Existing members would see a $1 price hike within a year, while older subs would see a price bump this spring.

Netflix does not disclose churn, which represents the percentage of subscribers who discontinue service within a quarter. The subscription streaming pioneer’s churn was pegged around 9% last August by Parks Associates — lower than Hulu Plus and Amazon Prime Video.

Pachter contends that with more than 30 million Netflix subs facing the larger 25% price hike, the probability a significant number of members opt out in favor of cheaper competing services increases. The price surge means a typical sub would pay more than $119 annually for Netflix, or $20 more than Amazon Prime.

“We expect to see slowing domestic subscriber growth for Netflix in the middle two quarters of the year, and expect Amazon to benefit from this churn,” Pachter wrote in an April 4 note.

Meanwhile, Netflix’s eight Golden Globe nominations — the most by any TV network — might appear to make its original content superior to Amazon (which had five Globe noms, but two wins for “Mozart in the Jungle”). Yet, with Netflix’s terminating it's non-exclusive Epix partnership — which Amazon re-upped — and Prime Video’s ongoing exclusive deal for rights to 3-year-old HBO original series, Pachter believes Amazon is more than competitive with Netflix.

Moreover, Amazon in January temporarily lowered the Prime membership fee to $73 (in honor of the 73rd Golden Globes) from its $99 regular annual fee.

“We believe this drove incremental Prime memberships in Q1 [which ended March 31],” the analyst wrote.

In addition, the analyst believes Amazon continues to market original content shrewdly to subs. The service’s “Prime Exclusives: Not on Netflix” promotional campaign may be driving incremental memberships, although it is not clear how many of these new subs will leave Netflix or subscribe to both services, said Pachter.

Indeed, Netflix scored high at the Screen Actors Guild Awards with nine nominations and four wins, compared with Prime Video's two noms and one win.

Amazon last December upped the stakes rolling out a SVOD shopping mall for third-party services. To date, about 30 OTT video services — including Showtime, Starz, Shudder and CONtv — are on the platform, which Amazon markets to Prime members. Amazon handles billing and backend support as well.

Pachter expects Amazon to aggressively promote the price differential and highlight the fact Prime members also receive music and free shipping. He said the loss of Epix and poorly timed price increase will make consumers begin to consider Amazon as an acceptable alternative to Netflix.

“In our view, Amazon is clearly trying to capture incremental share of the streaming market, and that can only serve to limit Netflix’s addressable market in the U.S.,” he wrote.

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