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Discussion: Netflix CFO – We Still Have Pricing Power

Undeterred by soft domestic subscriber growth due in part to a $1 price hike enacted at the end of the second quarter, Netflix remains bullish on its ability to raise prices and lure domestic subscribers, CFO David Wells told an investor group.

Netflix is also planning to launch service in six or more new countries in 2015.

Speaking Nov. 11 at RBC Capital Markets 2014 Technology, Internet, Media and Telecommunications confab in New York, Wells acknowledged the SVOD pioneer has a “question” or two on price increases following soft subscriber additions in the most recent fiscal quarter. Netflix raised the $7.99 monthly fee to $8.99 at the end of the second quarter.

Price hikes remain a sensitive issue to Netflix following the 2011 debacle that saw 800,000 subscribers drop the service and the company’s stock tumble 75% due in part to a 60% price increase to a popular streaming/disc rental plan.

When asked if subscribers could see a price hike every two years or so, Wells agreed it is management’s intention to “capture” more of Netflix’s value. But he also cautioned against expecting a singular global pricing “event.”

Instead, Netflix hopes to derive more value through current pricing tiers. It also doesn’t foresee a price hike outside the United States.

“We haven’t confirmed the long-term price elasticity issue. There’s definitely something to short-term price elasticity because the coincidence of lower [sub] acquisitions to the price increase means there’s some effect there,” Wells said. “I think we still have pricing power.”

Top Comments

Frank Luby

The communication part aside, it’s fascinating that the 2011 event is still described as a “debacle”. It’s hard to imagine any company turning down an opportunity to raise prices by 60% and lose only 4% of its customers. As for the market capitalization, let’s look at the longer term. Netflix eventually had a much higher market cap than before the 2011 increase, in part because it used the money from the price increase to improve the service and create great original content. Debacle? Hmmm …

Charley Morran

Pricing Coordinator at The Great Atlantic & Pacific Tea Company

You need to stay realistic about your product . When your direct competitor charges one yearly fee and and triple the movies and tv shows think strongly about the over all picture . Raising prices is inevitable but at least think about offering new ideas

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Netflix CFO: We Still Have Pricing Power.

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