Netflix to refine its pricing strategy after India price cuts boost engagement

Netflix had reduced the prices of its service in India by 20-60 percent in December 2021 amid intense competition and a rising appetite for digital content in the country.

Video streaming platform Netflix plans to refine its pricing strategy to offer a range of price points and feature sets to customers across the world after a similar price cut in India helped grow user engagement and accelerate its revenues in the country.

Netflix had reduced the prices of its service in India by 20-60 percent in December 2021 amid intense competition and a rising appetite for digital content in the country.

These reductions, along with an improved content slate, helped grow engagement in India by nearly 30 percent year-on-year while revenue growth increased to 24 percent in 2022 versus 19 percent in 2021, the company said in a letter to shareholders.

"Learning from this success, we reduced prices in an additional 116 countries in Q1. While they represented less than 5 percent of our FY22 revenue, we believe that increasing adoption in these markets will help to maximize our revenue longer term" the company said.

This measure comes as the video streaming service looks to woo new customers while retaining existing ones, especially in international markets such as India, as the company witnessed a slowdown in the growth of its paid member base after a pandemic-driven subscriber bump.

The company added 1.75 million paid members in the first quarter of 2023, missing analyst estimates of 2.06 million additions.

During the company's earnings conference call on April 18, Netflix CFO Spence Neumann termed this move as the next step in the company's evolution of a better product marketing fit and pricing fit with an aim to grow its penetration in these markets as well as deliver better medium and long-term revenues.

"When we did our global launch in 2016, it was pretty much across the board a bit of a skim approach and not particularly sophisticated in terms of our pricing," Neumann said.

He also noted that these price cuts are not material to their business anytime in the near term. "It’s a lot of countries, but it represents less than 5 percent of our revenue. So it's something that will hopefully benefit us over the long term."

Neumann also cautioned saying that not every market "is going to play out like that(India), but that’s what it would look like a success"

Paid sharing delayed to Q2 2023

The streaming giant is also delaying a broad rollout of its paid password sharing option to the second quarter, after initially stating plans to do so in Q1 2023. "While we could have launched broadly in Q1, we found opportunities to improve the experience for members, which we think will lead to even better results," he said.

Through paid sharing, members will have the option to pay an extra fee if they want to share their Netflix account with people they don’t live with. Members will however be able to continue watching content on their account while traveling.

During the earnings conference call, Netflix co-CEO Greg Peters said this initiative will be rolled out across the “vast majority” of countries where Netflix offers service, with pricing varying on a market-to-market basis. The membership growth and revenue benefit from this push will now likely materialise in Q3 2023, Netflix said in the shareholder letter.

The company has been piloting various ways to crack down on password sharing in select countries for the past few months and rolled out the paid sharing option to four countries including Canada, New Zealand, Portugal and Spain in Q1 2023.

Netflix estimates that over 100 million people use an account that they don't pay for, which the company says undermines its ability to invest in and improve the service for its paying members, as well as build its business.

"This is an important transition for us and we are working hard to make sure that we do it well and as thoughtfully as we can," Peters said.