The hugely popular online streaming service, Netflix, has decided once again to raise the cost of a subscription by $1. The monthly price will rise from $8.99 to $9.99. While Netflix has struggled some with sales, and this increase in price may show their need for more revenue, they still have an increasing number of subscribers each day. They do not predict that raise in price will deter many people because it still stands as the most popular online streaming service.
Streaming is becoming the dominant form of watching television and movies, quickly putting cable and satellite out of business. Many customers are opting for streaming because of the selection, convenience, price, and lack of commercials. Netflix has also created many of its own TV series and movies that are widely popular, like House of Cards and Orange is the New Black, which attracts many customers as well. The majority of customers are probably willing to pay a little bit more because of these benefits, but we will see if this price increase helps or hurts the company's overall revenue.
http://www.wired.com/2015/10/netflix-will-charge-one-dollar-standard-plan/
6 comments:
Although Netflix does retain a large number of subscribers, increasing the price of subscription may potentially deter potential, and even loyal customers. With several large competitors such as HBO GO, Amazon Prime, and Hulu Plus, it's possible that consumers will turn to more affordable options.
I doubt that increasing the monthly subscription by a dollar will ultimately change anything. I just got Netflix 2 weeks ago, and I never want to go back to the old way of buying or renting movies. The fact of the matter is it is way too cheap and convenient with Netflix, way more than any alternative, even with an increase in the monthly subscription. There is probably a ceiling to how much they can charge, and eventually if they ever hit it, people will react. But even still, I have no problem paying for this, and their revenue will probably increase simply because they will be taking in more money with minimal customer loss.
I think raising the price of Netflix is a good business proposition. People who already have Netflix are not going to unsubscribe because the value is worth more to them than $9.99. In addition, if new consumers want to get Netflix, they will get it because it is convenient and the most popular online streaming service. It might deter a couple people, but I think it will raise revenue overall.
One of the articles I read yesterday said Goldman Sachs interpreted Netflix's price increase mainly to attract more '1 screen only' customers and reduce their '2 screen sharing' customers since a lot of them, especially college students, tend to share their passwords a lot more to share the cost of subscription. This was hurting Netflix since they were losing some potential customers. '2 screen sharing' customers would now be more incentivized to switch back to '1 screen sharing' that would make it a lot less likely to share their passwords.
This new rise in price will have no effect on Netflix revenues. As there membership increases, almost 65 million world wide, their expenses increase as they're acquiring newer content. Instead of waiting years to acquire movies or till the next TV season starts to acquire less popular but still relevant content, there is a lesser wait period as they increase their inventory expenses from $2.4 to $3.5 billion in the last year according to a study done by Sidneyeve Matrix titles "The Netflix Effect".
To me, it is strange that Netflix subscriptions are still so inexpensive. As of now, it is still less than $120 a year for a subscription, which is much less than the return that its customers get from it. The lack of price increases is most likely due to the competition in the industry, with many other companies offering competitive streaming options. I look forward to seeing if the industry consolidates in the next 10 year, unless one company comes out with some revolutionary innovation. I wouldn't expect a $1.00 increase in the price of a Netflix subscription to deter any customers. But then again, there are always customers on the line. It would be fascinating to see Netflix's elasticity.
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