When Netflix announces its fourth-quarter earnings later today, it will likely provide some guidance on how its new price hikes could change subscriber growth projections.
But newly released research from analyst firm The Diffusion Group already suggests the price increases could negatively affect subscriber or revenue totals by driving subscribers toward less-expensive service tiers or to ditch Netflix all together.
The price for Netflix’s most basic tier, which allows viewing on only one screen at a time and doesn’t include HD video, will climb from $8 per month to $9. The price for Netflix’s most popular tier, which allows viewing on two screens at a time and includes HD video, will jump from $11 per month to $13. And the company’s highest tier, which allows up to four screens at once and includes Ultra HD video, will increase from $14 per month to $16.
Those are the biggest price increases in the history of Netflix’s streaming service. They are already reflected on the company’s website and will roll out to all 58 million U.S. subscribers over the next few months.
According to TDG’s latest Quantum Viewing Behavior survey of 1,940 U.S. adult broadband users completed in December 2018, even a $1 increase in the cost of Netflix could drive subscribers away. The survey revealed that at $1 more, 8% of subscribers said they would downgrade their plan and 8% said they would cancel Netflix. An overwhelming 84% majority said they would just pay the extra amount and keep their Netflix service as is.
When asked what they would do if Netflix raised prices by $3 per month, 16% said they would cancel, 22% said they would downgrade and 62% said they would pay the extra amount and maintain their current service. If the price went up $5 per month, the amount of people who said they’d cancel Netflix jumped up to 22%.
"While TDG believes that Netflix will endure any short-term backlash from these increases, it is undoubtedly reaching a level of price resistance across all tiers," said Michael Greeson, president of TDG, in a statement. "At an average increase of $3 per month, 33% of Standard tier subscribers are likely (though not certain) to downgrade to a less expensive plan and 10% are likely to cancel the service altogether, compared with 28% and 6% of Premium tier subscribers, respectively. These variances are not insignificant."
Jim O’Neill, principal analyst at Ooyala, said the price increase is more likely to affect Netflix users on the most basic service tier.
“With an increase in the basic plan, it’s possible there may be an actual decline among lower-income users who may be more price sensitive, but the demo that takes the HD and 4K plan—69% of Netflix’s subscribers in the U.S. will remain and grow in coming quarters,” O’Neill said.
He said Netflix’s massive amounts of new original content is enough to convince many Netflix users to pay a little more for the service.
“After all, the price of a Netflix subscription remains a fraction of standard cable offerings, which averaged $107 in the U.S. And that leaves plenty of room for growth for Netflix and the other OTT services that are continuing change how we watch TV,” O’Neill said.