SOURCE: ENDERS ANALYSIS ESTIMATE, COMPANY FILINGS
Streaming Services Are Raising Prices, So Why Is Netflix Dropping Them in 100-Plus Markets?
Netflix - This service's price drop affects "more than 10 million," or more than 4 percent of the company's more than 230 million subscribers as of the end of 2022, Ampere Analysis estimated.
As Hollywood giants focus on making their streaming businesses profitable, they have started raising the subscription prices for the likes of Disney+ and HBO Max. In contrast, streaming giant Netflix is dropping some of its prices in more than 100 international markets.
“Effective immediately Netflix is to drop monthly subscription pricing in more than 100 territories globally,” but not in North America and Western Europe where average revenue per user is higher, Ampere Analysis research manager Toby Holleran wrote on Wednesday. “The SVOD incumbent’s basic tier will record the highest percentage drop across a large number of territories. These territories, which span Central and South America, Sub-Saharan Africa, the Middle East and North Africa, Central and Eastern Europe and the Asia Pacific regions will see discounts for the basic tier range from 20 percent to nearly 60 percent, with the price drop kicking in instantly for new and existing subscribers.”
This Netflix price drop affects “more than 10 million,” or more than 4 percent of the company’s more than 230 million subscribers as of the end of 2022, the expert estimated.
While Netflix didn’t unveil the pricing changes in a big announcement, it communicated them locally. “Starting today, our Basic Plan in Malaysia is now RM28 per month for both new and existing members,” the streamer tweeted in that country, for example. The 28 Malaysian Ringgit ($6.32) is down from 35 Ringgit ($7.90) previously.
Netflix executives have also signaled in recent years that the streamer would be flexible on pricing to ensure the company’s service remains accessible to various types of consumers while management looks to optimize returns.
Ampere compared Netflix’s current pricing to its pricing at the end of January to identify the changes across markets. “From our research, it seems that a batch of price drops occurred across the Americas and Central and Eastern Europe last week, with the Asia Pacific, Middle East and North Africa, and Africa price drops occurring this week,” the firm explained.
Not all standard tier subscribers in markets receiving a discount to the basic tier will also get their price reduced. “Subscribers in Vietnam and Malaysia will miss out, whilst the remainder will receive discounts ranging from 13 percent (just in the Philippines) to almost 50 percent,” Holleran noted. And the Philippines joins Vietnam and Malaysia in receiving no price cut to the premium tier, while “all other discounted markets will receive a price drop of between 17 percent and 43 percent.”
But why is the streaming pioneer going counter to broader market trends? It surely doesn’t hurt that Netflix has been profitable, with its net income reaching $4.49 billion in 2022 after $5.12 billion in 2021. The move should also help soften the blow of the company’s rollout of its password-sharing crackdown, as well as high inflation that has hit consumers worldwide and the strong dollar that has affected users in territories where the streamer’s prices are dollar-based.
“These price drops potentially cancel out the extra cost to subscribers currently sharing accounts,” Holleran explained. “While this move will have a negative average revenue per user (ARPU) impact on Netflix in these emerging markets, it could drive subscriber additions amongst consumers yet to take the service.”
And he highlighted that “in many markets where the standard tier of Netflix has been discounted, the new price has been aligned to previous basic tier pricing.” What does that mean? “This essentially positions the discount as a free upgrade from basic to standard. This upgrade increases the resolution … and allows two concurrent streams. These markets include Indonesia, Egypt, Ecuador, Morocco and Croatia.”
Asked about the drivers behind the pricing changes, Holleran told The Hollywood Reporter: “High inflation will play a part, and more recently the strong U.S. dollar in many of the markets where Netflix pricing is presented in U.S. dollars – some countries could see a significant increase in cost in local currency terms, making a subscription less appealing and perhaps leading to churn.”
He also explained. “Virtually all of the markets where the price drop occurred are emerging markets, so this may serve as a means to drive subscriber growth — if Netflix drops its price by 20 percent, but it results in a 30 percent increase in subscribers, that is a net positive from a revenue perspective. It could also drive up potential eyeballs for Netflix moving forward, which could have it well positioned if it chooses to launch the ad-supported tier down the line.”
Enders Analysis’ Tom Harrington described the price changes as the next evolution for Netflix’s pricing following the launch of cheap mobile-only plans in some international markets. “It’s the next step in creating a nuanced, bespoke approach to pricing on a country-by-country basis – a far cry from how the product was pitched after the global rollout stage, where in many countries it was extremely expensive, uncompetitive against very cheap local streamers and only accessible by (their words) ‘western-oriented elites’,” he told THR.
“This is an admission that their pricing power in many locations is weaker than in the biggest markets,” he argued. “This move does chafe with Netflix’s attempts to redefine their corporate narrative with new metrics – they haven’t given up on subscriber growth just yet.” But it also shows that Netflix executives now have “a much more complete understanding of the propensity to buy and the needs of each of these markets, as well as how their different tiers work with and against each other.”
The expert expects the price changes to have been configured market-by-market with the “aim for subscriber growth” while avoiding as much as possible a “spin-down in tiers and ARPU decline of existing customers.” Concluded Harrington: “We would expect overall ARPU to be generally protected, i.e. countries with the biggest reductions will be those with the smallest customer bases on the affected tiers and the least likely to spin down.”
Ampere listed the territories that have seen Netflix drop its prices like this: Afghanistan, Albania, Algeria, Angola, Bangladesh, Belize, Benin, Bhutan, Bolivia, Bosnia & Herzegovina, Botswana, British Indian Ocean Territory, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Christmas Island, Comoros, Congo – Brazzaville, Congo – Kinshasa, Côte d’Ivoire, Croatia, Cuba, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, Gambia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Indonesia, Iraq, Jamaica, Jordan, Kenya, Kiribati, Laos, Lebanon, Lesotho, Liberia, Libya, Macedonia, Madagascar, Malawi, Malaysia, Mali, Mauritania, Mauritius, Mongolia, Montenegro, Morocco, Mozambique, Myanmar (Burma), Namibia, Nepal, Nicaragua, Niger, Palestinian Territories, Panama, Papua New Guinea, Paraguay, Philippines, Pitcairn Islands, Romania, Rwanda, Samoa, São Tomé & Príncipe, Senegal, Serbia, Seychelles, Sierra Leone, Slovenia, Solomon Islands, Somalia, South Sudan, Sri Lanka, St. Barthélemy, St. Helena, St. Lucia, St. Martin, St. Vincent & Grenadines, Sudan, Suriname, Swaziland, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Tunisia, Tuvalu, Uganda, Vanuatu, Venezuela, Vietnam, Wallis & Futuna, Yemen, Zambia and Zimbabwe.
Sorese: Hollywood Reporter