Netflix has admitted that a recent price increase is one likely reason for the company’s growth slowing down to a crawl. Rather than the forecast 2.5 million new subscribers for the three months to June, 2017, only 1.68 million new users have been added. Netflix admits that subscriber cancellations unexpectedly increased in the wake of a price increase announcement.
This appears to be largely due to a drop in the firm’s domestic subscribers. July to September 2016 saw an increase in US subscribers of 880,000, but Netflix states that this will be down to 300,000 for the same period this year.
The company is working hard to change consumer viewing habits worldwide, a drive that can lead to swings in share prices and corresponding investment and selling swings by investors. This announcement has led to Netflix shares dropping by 13% to $85.90 in New York after-hours trading Monday. A continuation of this in Wall Street Tuesday would mean a 25% reduction in the value of the company this year alone.
Company growth has been slowing worldwide lately, although revenue increased by 28% to $2.1 billion in the second quarter. This is largely due to higher prices, and around 20 million users are expected to pay between $1 and $2 extra each month by the end of the year.
Not only that, but there is increasing competition in movie streaming from Hulu and Amazon Prime, the latter being offered internationally as part of a free trial of the Prime service. Although available in practically every country worldwide, it has been excluded from mainland China along with the Apple and Disney streaming services. One expense involved in such a wide international reach is the cost of tailoring the service to a multitude of different markets and cultures.
Although it is still growing, Netflix faces the challenge of increasing the growth rate of domestic subscribers. This is necessary to fuel the cost of its international expansion plans. The price increase does not help, but the company believes that this is a short term issue.
Although the increase has led to a higher rate of subscription cancellations than expected, the monthly rate of $7.99 has not changed since 2011, and Hula and Time Warner’s monthly rates of $11.99 and $14.99 respectively indicate that Netflix still offers a very competitive streaming service.