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41% of people say they'll cancel Netflix if the price goes up — here's why they actually won't
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CEO of Netflix Reed Hastings
In May of 2014, Netflix began to raise the price of its standard streaming plan for new subscribers, first to $8.99 per month, then to $9.99 per month last October. Existing subscribers were grandfathered into the plan at $7.99 per month for the two-stream, “HD” quality plan.
That is set to change this May, when these grandfathered customers begin being moved up to the $9.99 plan. Analysts at UBS have estimated that this will affect about 17 million US subscribers (37%).
And people are grumbling.
In a survey conducted by UBS, 41% of respondents said they would accept no price increase for Netflix. They would, allegedly, not be willing to pay a single extra cent. This seems like horrible news for Netflix, which presumably is about to get gutted by insane subscriber losses in the coming months.
Except that it actually won’t. Why? Because when people estimate how much more they would be willing to pay for their entertainment service, they lie — maybe even to themselves.
UBS analysts spelled it out clearly in a report published Monday:
For those less familiar with how consumers typically respond to survey questions regarding subscription service price increases, it is uncommon for consumers to admit they are willing to pay more for most services. 41% of respondents in our survey were not willing to accept any price increase for Netflix, which is actually very positive when compared to 68% for pay TV. Consider pay TV costs have been rising 3-5% annually and the industry is now losing only ~1% of customers each year, relative to 68% of pay TV customers in our survey indicating no tolerance for price increases.
So how many people will cancel?
UBS estimates roughly 3%-4% of affected subscribers will cancel. This will drop US net additions to 450,000 from 903,000 in the same quarter of 2015. But it’s hardly the doom and gloom the survey results suggest.
One reason why Netflix users won’t cancel: it’s still a great value per hour spent watching. Netflix costs 9 cents per hour of viewing, while a typical pay TV package costs 30 cents per hour, according to UBS.
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