Netflix is raising the prices of their streaming service for long-term customers over the course of the year, and the company is predicting nearly 500,000 people will cancel their subscriptions.
Nearly 27 million of Netflix users will be subject to the price increase to $9.99 per month for the popular two-stream HD package, Variety learned from Nomura Securities analyst Anthony DiClemente. He predicts that the price increase could result in an estimated 480,000 subscribers cancelling their services.
While Netflix may be losing almost half a million subscribers, the hike in the prices will likely lead to around $520 million in additional annual revenue for the streaming service.
"We note that this has long been a tenet of our investment thesis on the domestic business, as slowing subscriber trends are more than offset by increased monetization," DiClemente wrote on Monday in a research note. DiClemente derived the estimates by "assuming a 2% churn rate for subscribers on the receiving end of a $2-per-month price increase and a 1% churn rate for those whose plan would go up by $1," according to Variety.
At the close of the first quarter in 2016, Netflix reported having nearly 47 million streaming subscribers in the United States alone, and having a total of around 81.5 million subscribers worldwide.
The higher subscriber fees will not only increase revenues, but also provide Netflix more cash to boost the available content for streaming, increasing from $5 billion in content spending to nearly $6 billion in 2017.
Netflix CEO Reed Hastings wrote in a quarterly letter to shareholders this past April, "We will phase out this grandfathering gradually over the remainder of 2016, with our longest-tenured members getting the longest benefit. We are rolling this out slowly over the year, rather than mostly in May, so we can learn as we go."
Only time will tell if analyst Anthony DiClemente's projections are going to be accurate.
Do you believe price increases will end up working overall in Netflix's favor, or will they lose even more subscribers than they are projecting?