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Summary Netflix prices increase hurt membership
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Managerial Economics ECO311 Case Study Netflix Prices Increase Hurt Membership
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NETFLIX PRICES INCREASE HURTMEMBERSHIP
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, 1
Managerial Economics
ECO311
Case Study
Netflix Prices Increase Hurt Membership
Netflix experienced some membership turbulence in 2016 as a price increase was phased in
for its US subscribers. In May 2014, Netflix announced that the price of its standard
subscription service would increase from $8 to $9. However, established customers were
allowed to stay at the $7.99 price for two years. In 2015, Netflix increased the standard price
to $9.99. As a result of the pricing plan and the deferred price increase, in May, 2016, the
standard pricing plan for long time customers of Netflix increased from $7.99 per month to
$9.99 per month. Netflix began notifying customers in April that the price increase would
become effective in the second quarter.
Netflix was trying to implement price increases more slowly after a 2011 increase led to
negative publicity and a customer backlash. In that case, Netflix separated its streaming and
DVD services, and charged separately for both services.
However, regardless of the implementation of the price increase, the higher monthly prices
seem to have impacted the growth of membership among US subscribers. In the two quarters
before the price increase, Netflix added net membership of 1.6 million and 2.2 million
members. By contrast, the number of members added in Q2 was only 160,000, and in Q3
only 400,000. The Q2 growth in US subscribers was the lowest since Netflix began reporting
those numbers in 2012.
US Streaming Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
(millions)
Revenue 1026 1064 1106 1161 1208 1304
Contribution Profit 340 344 379 413 414 475
Contribution Margin 33.1% 32.3% 34.3% 35.6% 34.3% 36.4%
Paid Memberships 41.1 42.1 43.4 45.7 46.0 46.5
Total Memberships 42.3 43.2 44.7 47.0 47.1 47.5
Net Additions 0.90 0.88 1.56 2.23 0.16 0.40
Monthly Revenue per $ 8.33 $ 8.43 $ 8.49 $ 8.47 $ 8.75 $ 9.40
Paid Member
Percentage Chg. Rev 3.7% 3.9% 5.0% 4.0% 7.9%
Percentage Chg. 2.5% 3.2% 5.3% 0.6% 0.9%
Memberships
Source: Netflix 10Q Q3, 2016
According to a MarketWatch article1 on the price increase:
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