Netflix subscribers will soon have to weigh the cost of their service
Reed Hastings isn’t too worried about Netflix subscribers dropping the service when the price goes up later this year.
If he is, he certainly didn’t show it during Netflix’s fourth-quarter earnings interview on Tuesday.
“It’s pretty simple, we’ll let them know that on a certain date, the price will go up. It’s pretty straightforward,” the Netflix co-founder and CEO said.
The streaming giant recently raised the price of its standard subscription service to $9.99 from $8.99 for new members. Some existing subscribers have been grandfathered in and are still paying $7.99 for the standard high-definition service, which lets them watch on two screens simultaneously.
In its fourth-quarter letter to investors, Netflix said it will release a substantial number of those subscribers from their grandfather clause. That means they’ll have a $2 increase in their subscription if they want to keep the standard service, or otherwise sign up for the lower-tiered $7.99 service that streams video in standard definition on one screen. The company didn’t specify a date, but said it will happen through the second and third quarters.
Netflix expects churn to increase only slightly, since these subscribers have been members for at least two years.
The news of the price hike was welcomed by investors: Netflix shares climbed as much as 12% after it was first announced in October.
Netflix caused an uproar with its Qwikster experiment in 2011 when it wanted to split its DVD business and increase prices 60% for subscribers who wanted both. Today, Netflix has much more original content that some analysts think justifies a premium price.
Back in October, Wedbush analyst Michael Pachter said the price hike was likely because of Netflix’s content.
“We believe that the increase reflects increasing content cost rather than pricing power,” Pachter wrote. “The $1 increase is unlikely to trigger significant customer attrition, but it is insufficient to take Netflix to the high level of future profitability that its valuation implies.”