Subscribers Are Finally Fed Up With Netflix Price Hikes, Survey Suggests

It’s been a rough year for Netflix (NFLX -6.36%), as the streaming video pioneer shed a total of 1.2 million subscribers during the first six months of 2022. On its second-quarter earnings call, management suggested the worst was over, with churn returning to the “levels before the price change”. However, a survey of viewers in the US paints a very different picture, suggesting that the streaming pioneer could lose a large number of its paid subscribers by the end of the year.

Let’s look at the reasons viewers gave for considering the change, how intentions may differ from reality, and what this all means for investors.

A tidal wave of defections?

A recent report suggests the pain is just beginning for the streaming pioneer, which could have serious ramifications for Netflix shareholders. A survey of 1,000 Americans found that about 25% of respondents said they plan to leave Netflix this year, according to a report. That suggests the streaming giant could be at risk of losing as many as 18 million subscribers by the end of the year.

When asked why they planned to leave, more than 40% mentioned the increased cost of a Netflix subscription. Another 20% pointed to rising costs for everyday items caused by inflation, with some seeing Netflix as a place to cut back.

Netflix may have become a victim of its own success. Until recently, the company was praised for its pricing power, apparently able to increase the subscription cost at will. Earlier this year, Netflix instituted its sixth fee increase in eight years, so at $15.49 for its most popular tier, subscribers may be feeling a bit of price fatigue.

Then there is the matter of choice. The survey found that the average viewer is subscribed to four streaming services. Once upon a time, the streaming giant was the only game in town, with a library packed with popular “must have” shows, as well as a number of compelling Netflix originals. Now, however, consumers have many other options, with Discovery of Warner Bros.HBO Max near the top of the list, closely followed by walt-disneyof Disney+, according to the survey. It’s not inconceivable that with budgets tightening, consumers could reduce the number of streaming services they subscribe to, with Netflix a potential option.

See also  The Lingering Mystery of Netflix's 'Sins of Our Mother'

However, there is some conflicting data in the report. When asked which streaming service they used the most, 70% cited Netflix, beating all other services by a wide margin. HBO Max came in a distant second with 10%, while Disney came in third with 6%. All other streaming services came in under 5%. This seems to contradict the idea that subscribers would cancel Netflix, the service they use the most.

A tale of two eyes

When Netflix reported its second quarter financial results, investors breathed a sigh of relief, because the results weren’t as bad as Netflix expected. The company lost 970,000 subscribers to churn, the industry term for churn, during the quarter, far less than the 2 million loss it had forecast. This led many investors to believe that the worst was over. Additionally, Netflix is ​​targeting 1 million net new subscribers in the third quarter.

So is the company about to lose 25% of its US subscriber base? A frustrated consumer, hit by a recent price hike, 40-year high inflation and crumbling purchasing power, might well say he’s quitting, and he means it at that point. However, with 70% of those surveyed saying they use Netflix more than any other service, it is highly doubtful that most will go ahead with canceling their most used service.

Additionally, Netflix announced plans to debut an ad-supported plan, which will provide viewers with a lower-cost option. While the company hasn’t said anything about a proposed release date for the new level, rumors suggest that Netflix is ​​targeting November 1, according to a report in The Wall Street Journal. Given the option of rescuing the service they watch the most or switching to a less expensive ad-supported plan, most viewers will likely choose the latter.

See also  10 new series for marathon until 2023

Time will tell

So what does this mean for shareholders? It won’t be long before Netflix comes out with its cheapest plan and a lot will depend on how that plan is received. The streaming giant will need to balance the need for ad revenue with the risk of alienating viewers, so the key will be how many ads the company shows and how much money it makes.

Estimates vary wildly, but Atlantic Equities analyst Hamilton Faber estimates that Netflix could generate an average revenue per user (ARPU) of $26 per month from advertising, almost triple the rate earned by Disney’s Hulu. Even factoring in current subscriber downgrades, Faber estimates that Netflix could generate $6.7 billion in incremental revenue over the next three years.

Netflix shareholders will want to keep a close eye on the release of the ad-supported level and watch closely to see if churn picks up. If the company falters on the advertising front or viewers start defecting en masse, it might be time for investors to switch channels on Netflix.

Danny Vena has positions at Netflix and Walt Disney. The Motley Fool has positions and recommends Netflix and Walt Disney. The Motley Fool recommends Warner Bros. Discovery, Inc. and recommends the following options: $145 long calls in January 2024 at Walt Disney and $155 short calls in January 2024 at Walt Disney. The Motley Fool has a disclosure policy.

Leave a Comment