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Analyst Says Netflix Could Absorb Additional Price Hikes

12 Jul, 2016 By: Erik Gruenwedel

Monthly subscription price can be a double-edged sword. Just ask Netflix. In 2011, the SVOD pioneer saw shares plummet more than 60% and co-founder CEO Reed Hastings’ leadership questioned when it upped by the price of a popular disc/streaming hybrid plan.

The price hike, coupled with the proposed (then scuttled) spin-off of the by-mail disc rental service, saw Hastings characterized as arrogant and the butt of jokes on “Saturday Night Live.”

Yet, with revenue predicated upon subscriber growth, services such as Netflix, Hulu and Amazon Prime Video weigh the risks and rewards raising monthly fees.

Netflix in April announced it would raise member prices $1 and $2 for new subscribers. Hastings said the increase was so the service could continue spending heavily on original and exclusive content ($12.6 billion in license obligations owed at the end of Q1).

“If we want to continue to expand … we have to eventually increase prices a little bit,” the CEO said on the April webcast.

Indeed, with the price gradually implemented, Netflix hoped to avoid a market backlash similar to before.

“It's a little bit cautious, but it won't hurt. We don't particularly need the revenue in the short term, so it's fine to just spread it out,” Hastings said.

That caution may be overblown, according to Piper Jaffray analyst Mike Olson. In a survey of 1,500 subscribers, Olson found that 55% of respondents said they would continue with Netflix priced at $15 monthly — 50% above the current $9.99 price point.

While Olson contends the next Netflix price hike is at least two years away, he estimates no more than 4% of domestic subs would leave the service following another price hike — and from 2% to 3% internationally.

"Based on our survey, we believe un-grandfathering of subscribers on a lower priced subscription will have minimal impact on the overall sub base," Olson wrote July 12. "Regarding future price increases … it appears Netflix has runway to push pricing higher."

About the Author: Erik Gruenwedel

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