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Netflix to Raise Subscription: Risking Loss of Customers?

Streaming giant, Netflix Inc. NFLX will be upgrading the current subscribers, who were “grandfathered” from a price hike, to the $9.99 SD streaming plan. Worse, not many are aware of it.

Netflix had first increased the price of its $7.99 plan in May 2014 to $9.99 for new users but existing subscribers were grandfathered for two years, which is now approaching expiration. As per an analyst, nearly 17 million customers or 37% of the entire domestic customer base will be affected by the expiration.

As per a Business Insider report, UBS survey found out that 41% of the respondents were not going to pay extra for Netflix. However, UBS analysts were quick to point that sometimes respondents themselves failed to gauge their own reactions to hikes in entertainment costs. Moreover, comparing the price tolerance to pay TV cost increases, they said 68% people in the survey weren’t willing to pay extra for TV costs hikes.

However, TV costs, which typically go up 3%-5% every year, churn has only been 1%. As a result, UBS expects a potential 3%-4% or 1.3 million subscribers to cancel the subscription in the wake of the Netflix rate increases.

Netflix’s focus on original content is something is likely to compel subscribers to stick round. The company, apart from other genres, is now more than ever focusing on kids and family oriented content. Netflix had earlier commented that over 65 million users are hooked on to kids’ content, thus encouraging the company to increase its investment in this lucrative area. 

The company declared that in 2016 it will be launching as many as 31 original series (including both new and sequels), about 8 original feature films and 12 documentaries, 35 original kids’ series and 9 stand-up comedy shows. Furthermore, in order to reinforce its image as a global provider, the company will time these releases so that they are available across the globe simultaneously. Netflix is currently available in 190 countries across the globe.

At present, Netflix carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include AMC Networks Inc. AMCX, Cumulus Media Inc. CMLS and Entercom Communications Corp. ETM. All sport a Zacks Rank #1 (Strong Buy).

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NETFLIX INC (NFLX): Free Stock Analysis Report
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