The international market is proving to be a gold mine for Netflix (NASDAQ:NFLX). The streaming giant's international subscriber numbers have grown by leaps and bounds in recent quarters, enabling it to offset the slowdown in the U.S. market. But despite the impressive increase in the company's international subscriber count, it still has a lot of room to grow its business in markets such as the Asia-Pacific region.
That's probably why Netflix CEO Reed Hastings is now contemplating stepping back from the company's premium pricing policy to capture more users in a market that could be fertile territory in the long run.
Netflix could make this unprecedented move...
As Bloomberg reports, Netflix has been known to maintain or raise pricing in the key markets where it operates. But Hastings recently said that the company is looking to experiment with lower pricing plans. He didn't provide any specifics as to when and where the company will test this strategy, but this is the second time in a month that Netflix has admitted it might be looking at a lower-priced subscription tier in certain markets.
Gregory Peters, the chief product officer at Netflix, said that the company is looking to "experiment with other pricing models -- not only for India, but around the world -- that allow us to sort of broaden access, by providing a pricing tier that sits below our current lowest tier."
Netflix isn't expected to disturb its current three-tier pricing model. Instead, it's expected to add a fourth pricing tier that will cut down on more features but help it attract new users into the ecosystem. If implemented, this would be a smart strategy on Netflix's part; the company would be better-equipped to cut its teeth in a market such as the Asia-Pacific region, which seems to be the most plausible place to test its lower-priced plan. Let's see why.
...to tap the multibillion-dollar Asia-Pacific opportunity
London-based agency Digital TV Research estimates that Asia-Pacific will have 351 million subscription video-on-demand (SVOD) customers by 2023. For comparison, there were 141 million SVOD customers in this region last year, with revenue standing at $5 billion. That revenue base is expected to triple in the next five years as the subscriber base grows by leaps and bounds.
Netflix, however, would find it difficult to tap into this opportunity given its current pricing structure. For instance, Netflix's base pricing plan of nearly $7 per month in India is much higher than the $2.75-per-month subscription charged by Hotstar (owned by Twenty-First Century Fox). Similarly, Asian streaming service Viu (owned by PCCW Limited) offers a monthly subscription that costs between $2 and $5 per month.
Given that Netflix has grand plans to reach 100 million subscribers in India alone, it needs to be more aggressive on the pricing front. That's because the company hasn't crossed the two-million-subscriber mark in any Asian nation so far, according to Media Partners Asia.
Now, it's a good thing that Netflix is focused on building more content by investing in over 100 film and television projects across markets such as India, Japan, Korea, Thailand, and Taiwan. But it needs to back itself up with more accessible pricing plans to bring more users into its fold, which is probably why it's contemplating adding another pricing tier to compete more effectively in these markets.
More importantly, Netflix will have to be aggressive in the Asia-Pacific market because it isn't yet available in China, and doesn't see itself in that market in the near future either. Given that China is expected to account for half of the streaming revenue in Asia-Pacific by 2023, Netflix needs to ensure that it quickly makes inroads into the rest of the countries there.
The right move
The company's strategy of launching a lower-priced plan for this region should pay off in the long run. It can lure customers into its fold with low prices, and eventually sell them premium plans as disposable incomes rise. At the same time, Netflix is widely expected to raise prices in more developed markets, in part to make up for the lower subscription rates in other areas.
There's a good chance that such a strategy would work, as the per capita GDP (gross domestic product) of developed markets such as the U.S. is higher than for Asian countries such as Japan, South Korea, or India. So Netflix would be doing the right thing by introducing a cheaper subscription structure, to help pave the way for long-term growth.