News surfaced Thursday that Netflix is cutting the price of streaming subscriptions in several international countries, and in some cases more than halving the price. While Netflix attempting to head off churn could be at play, at least one analyst firm said that's unlikely to be the case.
The WSJ reported price cuts are happening in more than 36 markets, while TechCrunch noted a drop in Netflix subscription costs in more than 100 territories over the past week or so. How much the price is decreasing appears to vary by tier and county, with impacted markets including in the Middle East and North Africa (MENA), Latin America, Eastern and Central Europe and the Asia Pacific (APAC) regions.
According to Ampere Analysis, these regions will see discounts for the SVOD’s basic tier range from a 20% drop to nearly 60%. Ampere noted that Netflix is offered in local currency in around 10 markets, providing a way to boost accessibility and keep subscribers insulated from currency volatility. Across those 10 markets that will see cost reductions to localized pricing, Netflix has a combined total of around 10 million subscribers.
“This suggest that more than 5% of Netflix’s 200m+ subscribers will see a reduction in the monthly price they pay for the service,” wrote Ampere.
The move to drop prices might seem surprising as other streamers and Netflix itself have already, or have indicated plans to increase U.S. prices – including most recently Paramount which just disclosed a price bump for its Paramount+ service will go into effect once Showtime is integrated into the app in the third quarter. Meanwhile, NBCUniversal’s Peacock discontinued offering a free tier for new users, and HBO Max bumped prices by $1 per month in January.
So what’s driving the international price at Netflix cuts? Peter Supino, analyst at Wolfe Research, in a note to investors said that while churn could be one reason, the metric improved in 2022 to now be in-line with the year ago Q4 period.
“It’s unlikely that a couple of months of weaker churn in 2023 (if that were occurring), would lead to price reductions across so many markets,” wrote Supino in a February 23 research note.
Instead, the Wall Street firm zeroed in on three other factors as more likely driving the decision, including success in India, a pre-step before implementing paid sharing crackdowns, and Netflix’s Basic with Ads plan – introduced last November - potentially driving more subscriber uptake than expected.
On the India front, Supino said it’s one of Netflix’s “highest growth markets with nice momentum, after recent price cuts (by 18-60%) in Q4 2021.”
Price cuts ahead of password sharing crackdowns could be a move to make “Netflix’s service more attractively priced in efforts to drive revenue maximization in these markets net of churn related consumer disruption once implemented,” the analyst wrote.
Ampere too pointed to the price drops as potentially canceling out the extra cost to subscribers currently sharing accounts once Netflix implements charges for out of home users.
“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,” wrote the research firm.
Netflix plans to implement paid sharing mechanisms more widely this quarter, including in the U.S. and other markets. In recent quarterly earnings reports the streamer estimated there are around 100 million households not being monetized as they share other users’ accounts.
For uptake on Netflix’s new ad-supported subscription plan, Wolfe Research noted press reports as indicating the streamer’s sign-ups doubled in January versus December “which may be informing a view that subscriber growth at lower prices may be more effective to revenue maximization in other additional markets, beyond where AVOD was launched.”
In general, Supino doesn’t see the price cuts as indicative of a strategy change for Netflix, which is keeping its eye on maximizing revenue.
Notably, Wolfe Research said the price cuts are happening in primarily small, less developed countries, which account for a small piece of Netflix’s revenue and smaller portion of EBITDA.
“While Netflix’s global ARPU trajectory will weaken, due to both lower prices and higher mix of sub growth coming from these markets going forward, penetration in these countries is low (some <10% of internet users), and the international subscriber growth opportunity is vast,” wrote Supino.
Stiffer competition could also be a factor.
In a statement provided to the Wall Street Journal, a Netflix spokesperson said, “We know members have never had more choices when it comes to entertainment.”
In Q4 Netflix added 7.6 million global subscribers, with the majority coming from it international operations. In its regional breakdown, Netflix added 3.19 million subscribers in EMEA, with Latin America contributing an additional 1.76 million subscribers and the APAC region adding 1.79 million paid users in Q4.
Netflix ended 2022 with around 231 million global subscribers, including 74.2 million in the U.S. and Canada.