If you're a U.S.-based Netflix (NFLX 2.60%) subscriber it's easy to expect prices to only head higher. Monthly rates for the leading premium streaming service have gone up five times over the past eight years.
The rest of the world doesn't always march in the same direction. Netflix is slashing its price in India by as much as 60% on Tuesday. It's a big move, but it isn't a big deal. Heads may be turning -- and the stock opened below $600 for the first time in nearly three months -- but it's not a problematic move for Netflix investors.
Cuts both ways
The pricing move in India is not insignificant. The monthly rate for its cheapest plan covering all of an account's devices goes from the Indian rupee equivalent of $6.56 to $2.62. Two higher tiers with better video quality are only being reduced by 19% to 23%. Its offering that only covers viewing on phones and tablets is getting a 25% haircut to $1.96 a month.
There are naturally negative implications to price cuts, but India has always been a unique market requiring aggressive rate sheets. It may be the world's second-most populous country, but premium pricing is a challenge if you want to go mainstream. The reason why average revenue per user for Walt Disney's streaming service is lower now than it was a year ago is because a lot of its subscriber growth has come from its Disney+ Hotstar platform in India.
The timing of the Netflix price cut in India is also interesting. Amazon had previously announced that the monthly price for its video streaming service was going to rise 39% to $2.35 on Tuesday. Netflix seemingly had the ideal opportunity to inch its price points higher, choosing instead to go the other way to grab market share.
Netflix will be fine, and don't go thinking that you'll be shaving 60% from your stateside subscription anytime soon. The five Netflix hikes for U.S. viewers since early 2014 for its most popular plan have amounted to an increase of between $1 to $2 a month in each case, but over time that's a 75% total increase.
There may very well come a time when the U.S. market will tire of feeding the meter at higher price points. No one has that kind of pricing flexibility. It just doesn't seem as if an isolated move in India would trigger price wars anywhere else in the Netflix playbook.
Why would Netflix's next move in the lucrative U.S. market be a step back? Why would it follow rivals by introducing cheaper ad-supported tiers? It's still growing despite its premium price points across most of the planet. Churn rates are actually improving. Netflix didn't become the top dog among streaming service companies by making pricing mistakes or letting smaller rivals dictate the cadence of its pricing elasticity. Going for a larger piece of India's market is more a sign of a long-term strategy than short-term desperation. Netflix knows what it's doing.