One of the more generous windows of grandfathering old rates -- Netflix's (NASDAQ:NFLX) decision to keep existing streaming accounts at $7.99 a month for two years -- ends next month. Netflix announced an increase on May 9, 2014, pushing rates of its most popular plan that allows folks to stream in high-def on two screens up $1 to $8.99 a month for new subscribers. It went on to boost that monthly price to $9.99 last October.
This means that Netflix's promise to hold the line on increases will expire exactly one month from today. There's already some rumbling in cyberspace, but it's worth pointing out that this isn't a big deal -- and that you're probably going to gladly pay the new price.
This isn't a big deal
Netflix topped 75 million subscribers worldwide in January, but this is a move that only impacts a much smaller subset of folks with streaming accounts. It actually only had 48.4 million streaming members when it announced the first increase with the two-year reprieve. Some of those were international signups, so we can narrow down the original pool to just 35.7 million Web-savvy accounts.
We can assume that there's been a lot of turnover over the past two years, and we have to assume because Netflix stopped publishing its monthly churn rates ages ago. The incentive to stick around and keep the original rate is not insignificant, but if you needed a break from the platform, it's not as if paying a buck or two more a month down the line would be a deal breaker.
UBS analysts estimate that there are 17 million domestic streaming accounts still around pre-May 9, 2014, and that's just 21% of the 80.9 million total streaming subs that Netflix was forecasting to have on its rolls by the end of last month.
If it can push through the entire $2 a month increase, we'd be talking about $34 million a month in incremental revenue for this very scalable model. It won't be that much. Some folks will cancel. Some will downgrade to the $7.99 a month plan that offers two screens a month at standard definition. However, a lot of people -- you included -- will stick around.
You will gladly keep paying
Netflix is still a great deal at $9.99 a month. Why do you think Netflix's subscriber base grew at a heady 30% clip last year?
HBO Now is at $14.99 a month with a sliver of the content volume. Sure, HBO Now makes up for that in quality and newer movies, but it's not as if Netflix is pricing itself at the high end of the market with this move. Whether it's the price or the breadth of titles, Netflix experienced 17.4 million in net subscriber growth last year. HBO Now couldn't break a million.
There are certainly plenty of alternatives out there for streaming television, and that includes Prime Video which is available at no additional costs to the tens of millions of subscribers to that shopping marketplace club. However, with most new streaming platforms priced at $9.99 or higher -- Hulu's ad-free option is $11.99 a month -- Netflix is still a bargain.
It also bears emphasizing that Netflix has a history of parlaying higher rates into more magnetic content. It's not just gouging couch potatoes. Its streaming content obligations have ballooned from $9.5 billion to $10.9 billion over the past year.
Some analysts and bloggers are pointing out how cancellations will be high because subscribers didn't see next month's move coming. Well, Netflix did spell things out two years ago. All of the stories breaking now will also go a long toward educating Netflix's early adopters. There may come a time when Netflix goes too far, but May 9, 2016 won't be it. Netflix is leveling the playing field, and you're still going to be pushing the play button.
Rick Munarriz owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.