Netflix could make an extra $520 million per year because of its price hike

Starting in May, more than 22 million US Netflix subscribers began to see a price hike of one or two dollars per month, which will continue to roll out over the next few months.

That increase will be worth about $520 million per year in revenue to Netflix, according to Nomura analyst Anthony DiClemente.

In May 2014, Netflix began to raise the price of its standard streaming plan for new US subscribers, first to $8.99 a month, then to $9.99 a month last October. But if you were an existing subscriber before each of the two price increases, Netflix grandfathered in your plan at the same rate.

That means that many Netflix subscribers are still paying either $7.99 or $8.99 for a plan that normally costs $9.99.

But that grandfathering will cease over the course of the next few months. “We will phase out this grandfathering gradually over the remainder of 2016, with our longest­ tenured members getting the longest benefit,” Netflix wrote. This process with started in May, but will happen “slowly,” with all affected members being notified by email.

DiClemente estimates that about 480,000 people will cancel, but that this will more than be offset by the extra revenue. And it fits into a broader pattern moving forward.

“We note that this has long been a tenet of our investment thesis on the domestic business, as slowing subscriber trends are more than offset by increased monetisation,” DiClemente wrote in a note on Monday.

NOW WATCH: How to find Netflix’s secret categories

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.

Tagged In

netflix sai-us thewire