Netflix announced to its subscribers earlier this year that its pricing system will be reworked, and that the grandfathered monthly $7.99 will be canceled sometime in the Q3 2016.
CEO of Netflix, Reed Hastings, noted the "unexpected" reaction of subscribers who bailed out on the service after the price adjustment took place.
The update of the pricing system asks users who already banked two years with the service to pay $9.99/month for tapping into the company's popular streaming service.
It should be noted that Netflix updated its offer with popular titles such as House of Cards and Orange is the New Black in the meantime, which the executives of the company think justify the extra monthly $2. The two shows started in 2013, with the increased subscription price debuting one year later, in 2014. Those who want to keep their $7.99/monthly fee for Netflix are able to do so, but they lose HD video streaming in the process.
Reports indicate a drop of 15 percent in share value for the company before its Q2 earnings report, as a direct result of defecting users.
"[We] slightly under-forecasted the quarter, ending Q2 with operating income of $70 million and net income of $41 million," Hastings affirms. He mentions that the initial estimates were $47 million for operating income and $9 million for net income.
For the Q2 2016, the company states that it hoped to attract 532,000 new subscribers in the U.S. and 2.1 million new global users. The reality did not match the expectations, with a new client pool of only 160,000 new customers in the U.S. and 1.52 million in foreign markets.
Hastings points out that while his company's "gross additions were on target," the number of subscribers that renounced the service was quick to grow. He says users probably understood the modifications of tariffs as an "impending new price increase," when in reality it was merely an ending of the initial grandfather pricing contract.
"Over the second half of this year, we'll complete un-grandfathering," Hastings mentions.
The Netflix CEO did affirm that the number of users who researched and googled the increased prices for the subscription correlates with the churn in subscriptions that the company has seen since spring this year.
Although Netflix boosted its media content quite a bit in the last period, Netflix acknowledges that nobody likes to pay more for a service they got used to. Hastings adds that the new price tiers are a great fit for new members. Netflix offers three subscription plans in the United States: $7.99 SD, $9.99 HD and $11.99 UHD.
