Netflix's price increase might cause it to lose millions of subscribers, survey says
The information comes from Multichannel’s report on research done by The Diffusion Group on Netflix subscribers sensitivity to price increases. We don’t know if TDG had any inside information on the upcoming changes or was just lucky to have conducted a survey before they were announced, but either way, the results are worth examining.
The participants in the research were 1,940 US adults and they were asked what their reaction would be if Netflix increased prices by $1, $3 and $5/month. As a reminder, Netflix is bumping its cheapest subscription from $7 to $8/month (14% increase) and its more premium plans by $2/month from $11 to $13 (18% increase) and $14 to $16 (14% increase). So while the survey didn’t match the second increase bracket, the results can still be useful. Here’s what people said.
When it comes to the $1 increase, 8% of the people said that will be the last straw for them and they will cancel the subscription altogether, while another 8% said they’ll downgrade to a lower plan (but what if there isn’t one?). For the $3 increase, those percentages are 16% and 22% respectively, so by doing some rough interpolation, we can assume that for a $2 price increase about 12% would cancel the service.
Those are not small percentages at all, if we apply even the lowest 8% to Netflix’s user base in the States, around 58 million strong, that would be equal to a 4.6 million drop in subscribers. Let’s go on with the math for just a bit more. If every one of those lost subscribers was on the cheapest plan, that means Netflix will lose about $37 million per month in revenue. However, the remaining 53+ million subscribers will bring at least a dollar a month more, meaning the total monthly revenue will actually go up by around $15 million.
Again, those are very rough calculations that are just meant to show you that Netflix knows what it’s doing. The stock market seems to agree as well, Netflix shares getting their own price bump after the company’s announcement. What the actual change in subscribers will be we may find out in a few months from now when things settle down.