As Netflix telegraphed last month, the company is raising fees for new streaming subscribers — by $1, to $8.99 monthly — while promising existing subs their pricing won’t change for two years.
“In order to continue adding more movies and TV shows, we are increasing our price from $7.99 to $8.99 for new members,” the company said in a message to customers Friday. “As a thank you for being a member of Netflix already, we guarantee that your streaming plan and price will not change for two years.”
In addition, Netflix said it is introducing a new $7.99 plan, which provides only standard-definition-quality video limited to just one screen at a time (compared with two HD streams on the regular service). The company tested the SD-only, single-stream plan last December.
Last month, Netflix said it expected to increase the price of the streaming-video service by $1-$2 monthly for new subscribers in the second quarter of 2014, but grandfathering current subs for one to two years.
It’s not clear how the price change will affect Netflix’s subscriber growth in the near term. But the two-year freeze on fees for current members is a critical difference from its decision in 2011 to split streaming and DVD services — resulting in a 60% price hike for some, which prompted a wave of cancellations.
Surveys have indicated a $1 price increase by Netflix would have marginal impact on churn. Just 17% of Netflix subscribers said they would be “extremely likely” or “very likely” to cancel after a $1 increase, while 30% would be “not at all likely” to do so, according to an RBC Capital Markets survey of 1,025 U.S. consumers. And, it’s important to note, Netflix isn’t raising rates for existing members, so the risk of mass cancellations is nil for two years.
Netflix also is raising prices for new members internationally. Monthly fees for new users in the U.K. will increase £1 and in Europe by €1, to £6.99 and €8.99, respectively.
The company has experienced phenomenal growth worldwide, in large part because of its relatively inexpensive subscription fees. In the first quarter of 2014, Netflix added a net 2.25 million streaming subs in the U.S. and 1.75 million internationally. As of the end of March, it tallied 35.67 million domestic streaming subs, up 22% from a year earlier. International subscribers stood at 12.68 million (up 78% from Q1 2013).
Meanwhile, Netflix challenger Amazon this spring raised the price of Prime, the free-shipping and unlimited streaming-video service, from $79 to $99 per year in the U.S. for all members.