05/09/2014 09:34 am ET Updated Dec 06, 2017

Netflix Raises Price By $1 For New Customers

The Netflix company logo is seen at Netflix headquarters in Los Gatos, CA on Wednesday, April 13, 2011.   AFP PHOTO / Ryan An
The Netflix company logo is seen at Netflix headquarters in Los Gatos, CA on Wednesday, April 13, 2011. AFP PHOTO / Ryan Anson (Photo credit should read Ryan Anson/AFP/Getty Images)

After ample warning that a price hike was coming, Netflix announced early Friday morning it was raising the cost of subscribing to its streaming video service from $7.99 to $8.99 per month for new U.S. customers.

In an email sent to current subscribers, Netflix made it very clear in bold, red letters that the $1 increase would not apply to old members for two years:

netflix price increase

The $1 bump is Netflix's first price increase since 2011, when the company tried to charge customers separately for its DVD rental and video streaming services. Splitting Netflix's two core businesses effectively raised the price for those who wanted both, prompting a customer revolt that caused Netflix's stock to plummet by 75 percent in three months. Netflix CEO Reed Hastings later backtracked on the decision and apologized.

This time around, Netflix took a few measures to prevent another PR catastrophe. First, it decided to grandfather in old members with the lower, $7.99 price for two years. A survey conducted by HuffPost and YouGov last week found that only 3 percent of subscribers said they would quit the service right away if the price went up by $1 but they were grandfathered in at the lower rate. About a fifth of customers said they would quit if the price increase happened immediately.

Netflix also helped customers avoid sticker shock by publicly discussing the possibility of a $1-to-$2 price bump. By offering a range of potential prices, Netflix raised customers' expectations about how high the price could go, before coming in at the low end. Amazon deployed the same strategy when it hiked the price of Amazon Prime by $20 after saying it was considering an increase of between $20 and $40.

Finally, Netflix chose a fantastic day to tell the world it was getting more expensive. Late Thursday, the Financial Times reported that Apple was close to making its biggest acquisition ever by buying Beats Electronics for $3.2 billion. In other words, reporters covering Silicon Valley had more to write about than just Netflix.