Netflix Could Feel Safe Raising Streaming Pricing Soon: Analysts

Only 17% of users would be ‘very’ or ‘extremely’ likely to cancel after $1 monthly hike, RBC survey says

Netflix Could Raise Price of Streaming

With the sting subsiding from Netflix’s poorly managed 2011 price change, the Internet video streamer over time should be in a position to modestly raise pricing on its $7.99 monthly plan, a survey by RBC Capital Markets indicates.

Netflix says it has no current plans to change pricing for the popular service, which provides unlimited access to TV shows, movies and exclusive series like “House of Cards” and “Arrested Development,” which will bow for a fourth season May 26 on Netflix.

But an RBC survey earlier this month of 1,025 U.S. consumers found that a $1 hike in price would result in relatively minimal backlash. Just 17% said they would be “extremely likely” or “very likely” to cancel Netflix after a $1 increase —whereas 30% would be “not at all likely” to bail.

RBC cautioned that consumers’ reaction to price increases is very hard to accurately test via surveys. However, the results point to “potential Netflix pricing power,” analysts Mark Mahaney, David Bank and Andre Sequin wrote in a research note. “Our belief is that as Netflix increases its content offering and improves its user experience that… will increase its ability to modestly raise pricing over time, depending on competitive circumstances.”

Of course, Netflix will be compelled to raise rates at some point, if for no other reason than to adjust for inflation. The streamer also is facing sizable content payments over the next few years, including for its exclusive pact for Walt Disney Co. titles starting with 2016 theatrical releases.

Netflix execs have disavowed any interest in introducing a higher-priced premium content tier. The company recently introduced a “family” plan at $11.99 monthly, which lets subscribers stream up to four programs simultaneously (versus two with the regular plan).

Among those RBC surveyed in the U.S., 37% were current Netflix subscribers and 19% were former customers. About 58% of current Netflix subscribers are either “extremely satisfied” or “very satisfied.”

Overall, that’s still well below satisfaction levels prior to Netflix’s mid-2011 announcement that it would split DVD and streaming plans, effectively raising pricing for subscribers who wanted to keep both. The survey results highlight “the magnitude and duration of the brand ‘hit’ Netflix inflicted on itself,” RBC analysts wrote. Netflix topper Reed Hastings has issued several mea culpas for the snafu, including Tuesday at a conference in Toronto.

In terms of content selection, 21% of current Netflix subscribers said it has “greatly or moderately improved” over the last 12 months, while 25% believe it has “slightly improved,” according to RBC’s survey. The addition of original content such as “House of Cards” is “likely having a positive impact on the perceived quality of the company’s streaming content,” analysts noted.

In the U.K., by contrast, Netflix doesn’t have anywhere near the relatively loyal customer base it has in the States, according to RBC.

A separate RBC survey earlier this month of 1,500 British Internet users found only 8% of respondents said they used the service to watch movies and TV shows. Moreover, among U.K. users who subscribe to both Amazon’s Lovefilm and Netflix, 64% said they preferred Lovefilm and only 17% picked Netflix.

RBC has an “outperform” rating on Netflix with a price target of $250 per share. Netflix stock closed at $233.97 per share Tuesday.

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