Price Hike Could Cost Netflix, Inc. 500,000 Subscribers

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An increase of $2 in Netflix’s price could cost it nearly 500,000 subscribers. Nomura analyst Anthony DiClemente said a recent study leads him to believe that the streaming giant will lose about 480,000 subscribers in the U.S. as a result of the price hike.

500,000 subscribers to exit after price hike

Since launching its global expansion expansion efforts, Netflix has seen its costs rise sharply as it puts more money into original films and series. With Netflix’s constant refusal to employ advertising, the company had to draw the cash from somewhere, and the price hike, which analysts have predicted for a long time, appeared to be an obvious solution.

Netflix’s standard subscription service for new members now costs $9.99 (up from $8.99). Some viewers are still paying $7.99 for standard high-definition service, which lets them watch on two screens simultaneously. As the streaming giant pushes these subscribers out of the grandfather clause, they will have to pay $2 more to continue the standard high-definition service, or they may opt for the lower-tiered offering at $7.99.

Netflix Chief Executive Reed Hastings accepted that the price hike could cause some subscribers to leave the service, but he wasn’t so concerned about the impact when talking with investors and analysts during the 2015 fourth quarter earnings call.

Will Netflix really lose subscribers?

Cable service is increasingly breaking the $100+ per month mark and is continuously rising. Considering this, an idea that a slight hike increase from $7.99 to $9.99 (or $8.99 to $9.99 for some customers) could send users packing is absurd, states The Next Web.

Netflix offers one of the largest streaming portfolios and popular original shows like Orange is the New Black, Jessica Jones, House of Cards, Narcos, Daredevil and others. Apart from Netflix, there are other players too, like Amazon Prime Video, Hulu Plus and HBO Go, but even then, viewers are still spending “less than half of what they once spent on — let’s be honest — mostly shitty cable programming,” says TNW. TNW’s Bryan Clark, who believes Netflix to be among the best bargains in entertainment, is puzzled by Nomura’s finding.

“I honestly can’t wrap my head around how it stands to lose nearly 500,000 people over what accounts to half a starbucks latte.”

On Monday, DiClemente lowered his 12-month price target on the streaming giant to $115 from $125. In the near-term, the Nomura analyst expects Netflix’s international subscriber growth to slow down. However, long-term, the analyst is positive “on Netflix, with the conviction that the streaming giant, Netflix will continue to accumulate noteworthy benefits as its position will be further established as the dominant global distributor of contents.”

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About the Author

Aman Jain
Aman is MBA (Finance) with an experience on both Marketing and Finance side. He has worked as a Risk Analyst for AIR Worldwide, and is currently leading VeRa FinServ, a Financial Research firm. Favorite pastimes include watching science fiction movies, reviewing tech gadgets, playing PC games and cricket. - Email him at amanjain@valuewalk.com

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