Earlier this year, Netflix (NASDAQ:NFLX) raised the price of its streaming service for U.S. subscribers for the first time since October 2017. The cost of the standard monthly pricing plan -- its most popular tier -- grew from $10.99 to $12.99, an increase of about 18%.
The cost of the other tiers rose as well. The premium monthly plan increased from $13.99 to $15.99, up 14%, while the basic plan went up by $1 to $8.99, climbing 12%. This marked the fourth price increase in five years.
That price hike took effect in May, and a recent survey suggests that Netflix may have gone too far too fast, with nearly a quarter of Netflix subscribers saying the service has gotten too expensive.
How much is too much?
After the most recent price increase, a survey conducted by Kill the Cable Bill found that 24.3% of 1,004 U.S. Netflix subscribers said the service had become "too expensive." That compares to 61.4% who found it "reasonably priced," and 14.3% who deemed it a "great value."
With more than 60 million domestic subscribers, that implies that nearly 15 million customers are unhappy with the current cost of a Netflix subscription and might be considering other options.
This seems to support the results of a January survey -- taken just after Netflix announced its latest price hike. That study, conducted by Streaming Observer, found that 27% of Netflix subscribers said they "might" or "will definitely" cancel, given the higher monthly cost. Among all respondents, only about 3% said they "will definitely cancel," while about 24% said they "might."
The reality may be far different
While it's fairly common for consumers to gripe about price increases, history shows that most people don't make any changes as a result.
Chris Brantner, the founder of Streaming Observer, said that while people balk at price hikes, it's usually just talk. "When Netflix has raised prices and subscribers have threatened to cancel in large numbers, analysts predicted only a very small percentage, roughly 3%-4%, of subscribers would actually do so. In that case, the price increase would still prove to be quite profitable overall for Netflix."
That view is supported by data from UBS analysts. In 2014, just as Netflix was ready to implement a price change, 41% of those surveyed said they wouldn't accept any price increase for the service. When it came right down to it, Netflix reported a sizable increase in subscriber numbers. In a note to clients that year, UBS analysts addressed the phenomenon: "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."
If you want further evidence that the price hikes aren't hurting subscriber growth, consider this: Netflix has raised prices four times in the past five years, with the monthly cost increasing a whopping 63%. During the same period, Netflix global subscriber base has tripled, growing from 46 million to 149 million. This illustrates that the company's strategy of giving subscribers more bang for their buck is paying off.
We'll know soon enough
Netflix's management team has been around the block a time or two and has more than two decades' worth of data on the effect of price increases on subscriber numbers. Netflix forecast U.S. subscriber gains of just 300,000 for the upcoming second quarter, less than half the 870,000 that joined in the prior-year quarter. This is also significantly slower than in each of the previous three quarters, which boasted subscriber gains of 1.74 million (Q1), 1.53 million (Q4 2018), and 1 million (Q3 2018), respectively. It should be noted that the second quarter is seasonally slower for Netflix, and the company was also likely being conservative in its estimate, given the recent price increases.
Considering Netflix's history of conservative guidance and the initial strong performance of the third season of Stranger Things, investors shouldn't be at all surprised if the company generates stronger-than-expected subscriber gains when it reports earnings on July 17.