Netflix (NASDAQ:NFLX) announced this week that it is launching a new mobile plan in India. The tier costs 199 rupees per month (about $2.89 at current exchange rates), and will offer all of Netflix's content "uninterrupted and without ads" and include standard-definition streaming on one smartphone or tablet at a time. The company said this would be the fourth tier for Netflix in India, augmenting its three existing pricing plans.

The basic plan in India runs 499 rupees (about $7.23), the standard plan costs 649 rupees (about $9.41), and the premium plan goes for 799 rupees (about $11.58).

Young Indian woman in a bright red outfit looking at her phone.

Image source: Getty Images.

Catering to the local market

Netflix has previously tested lower price points in an effort to capture market share, and this appears to be the result of those tests. Reports emerged earlier this year that Netflix was testing a pricing plan in India that cost 250 rupees (about $3.62). Netflix also reportedly offered a mobile-only tier in Malaysia, which cost 17 ringgits per month (about $4.13), about half the cost of the basic subscription. 

Netflix cited a Federation of Indian Chambers of Commerce and Industry and Ernst & Young (FICCI-EY) 2019 report that indicates Indians spend 30% of their phone time -- and over 70% of their mobile data -- on entertainment.

"Our members in India watch more on their mobiles than members anywhere else in the world -- and they love to download our shows and films. We believe this new plan will make Netflix even more accessible and better suit people who like to watch on their smartphones and tablets -- both on the go and at home," said Ajay Arora, Netflix's director of product innovation.

More than 1 billion reasons

Netflix has made no secret of the fact that India is a high priority for the company, which boasts more than 1.3 billion inhabitants (nearly 18% of the world's population). At the same time, India's middle class is growing rapidly, from 80 million today to an estimated 580 million by 2025. With that many potential customers, it's easy to see why Netflix is eager to establish a foothold.

In an interview last year, Netflix CEO Reed Hastings said, "Given the consumer base, the next 100 million [subscribers] for us is coming from India." The streaming giant has been investing heavily in content in India, including Sacred Games, Chopsticks, and Mighty Little Bheem. Netflix revealed it currently has 13 new films and nine new original series already in the pipeline for Indian audiences.

In its second-quarter shareholder letter, Netflix said that after months of testing it would roll out the new pricing plan in India during the third quarter. "We believe this plan, which will launch in Q3, will be an effective way to introduce a larger number of people in India to Netflix and to further expand our business in a market where Pay TV [average revenue per user] is low (below $5)."

An Indian policeman in a turban covered in blood, pointing a gun at an unseen foe.

Saif Ali Khan in a scene from Netflix original Sacred Games. Image source: Netflix.

Ulterior motive?

This move comes on the heels of Netflix's second-quarter earnings release, with the company reporting far slower subscriber growth than the company had anticipated. Netflix guided for 5.45 million additional subscribers in Q2, but reported just 2.7 million new members, causing the stock to drop more than 10% on the day following its financial report.

While some might suggest the company is chasing new users at any cost, that's simply not the case. Subscriptions to Disney (NYSE:DIS)-owned Hotstar -- the biggest streaming service in India -- also start at 199 rupees, so Netflix is merely matching the competition. It will have a long way to go to match Hotstar's subscriber numbers in India, however, which exceed 300 million, nearly double Netflix's worldwide subscriber base. 

If Netflix is to have any hope of competing for India's streaming audience -- or other lower-cost-of-living countries -- a lower-priced plan was simply a necessary move.