Earlier this year, Netflix reminded its oldest users that the terms of its grandfathered pricing — which kept these subscribers at the $7.99 level for two years — would be coming to a close sometime in the second or third quarter of 2016.
In a recent letter to the company’s investors, CEO Reed Hastings remarked on the unfortunate churn of its subscriber base who reacted “unexpectedly” to the impending price increase.
The loss of grandfathered pricing places these older users at a new $9.99/month charge for the company’s popular streaming service, which Netflix sees as an agreeable compensation for its noticeable uptick in consistent, original programs like Orange is the New Black and House of Cards. These shows debuted in 2013, and the $9.99/month price for new subscribers began just the next year, in 2014. Users can choose to stay at $7.99/month if they wish, at the loss of HD video streaming.
Due to these abandoned users, the company’s stock fell 15 percent before its second quarter earnings report, shared yesterday. In the report, Netflix noted that it expected to add about 532,000 subscribers in the United States and 2.10 million internationally in Q2 2016 (just under a 2.5 million goal), but came up short on both goals. The company ultimately netted 160,000 new customers in the U.S. and 1.52 million overseas, landing under 1.7 million total in the quarter.
“Gross additions were on target, but churn ticked up slightly and unexpectedly, coincident with the press coverage in early April of our plan to un-grandfather longer tenured members and remained elevated through the quarter,” said Netflix CEO Reed Hastings in a letter to investors. “We think some members perceived the news as an impending new price increase rather than the completion of two years of grandfathering.”
As the price hike began to near in the spring, Hastings admitted that users googling and researching the increase in their subscription cost appears to be consistent with the churn the company has seen this quarter. Despite Netflix’s increase in programming, “Whatever the price is for something, people don’t like for it to go up,” Hastings admitted, while still claiming that the new price tiers are “working great” for new members.
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