Netflix (NFLX 0.40%) made an interesting change to its service in India this week. When its competitor, Amazon (AMZN -3.95%), raised prices for its Prime subscription options, Netflix lowered the prices of its plans.
Subscribers will see their monthly bill fall as much as 60%, with its standard plan going from 499 rupees per month ($6.55 at current exchange rates) to 199 rupees ($2.61). At the low end, subscribers can get access to Netflix's mobile-only plan for just 149 rupees ($1.92) per month (down from 199 rupees per month, or $2.61), which is now less than Amazon's monthly Prime pricing.
Still, Netflix is chasing Walt Disney (DIS 0.34%) and its Disney+ Hotstar service, which is priced as low as 499 rupees per year ($6.55) for mobile-only accounts. Disney made pricing changes in India earlier this year.
Netflix offices in Los Angeles. Image source: Netflix.
Pricing for scale
Netflix has struggled to win subscribers in India. It has around 5 million subscribers in the country, according to data from consulting firm Media Partners Asia. By comparison, Disney+ Hotstar counts 46 million Indian subscribers, and Amazon Prime has about 19 million.
Disney expects Disney+ Hotstar subscribers to total 70 million to 100 million by 2024. While the service had a setback in the fourth quarter as a result of unfortunate content timing and a new law regarding automatic subscription renewals, Disney looks like it's back on track toward that long-term goal.
The same can't be said of Netflix's goal to reach 100 million subscribers in India, which CEO Reed Hastings talked about in 2018. And a big reason likely comes down to pricing. Netflix has experimented with its pricing levels in the country, introducing the low-end mobile-only plan in 2019. Earlier this year, Hastings admitted the company is "still figuring things out" in India during Netflix's first-quarter earnings call.
The challenge is that consumers in India don't have the same willingness to pay for premium content as viewers in other markets do. And as Disney bolsters Hotstar with tons of new content last April, while keeping its pricing very low, it's even more difficult for Netflix to make headway with consumers.
Netflix's new pricing, 199 rupees per month ($2.61) for its standard plan, is still more than 2.5 times as expensive as Disney's most comparable plan. Despite both Disney and Amazon raising their prices this year, consumers could still subscribe to both companies' streaming services for about the same total price as Netflix's most affordable mobile-only plan.
Only half the equation
Netflix has steadily increased its content investments in India over the past few years. Its content budget for the country topped $200 million in each of the past two years. Despite the investments, the company still hasn't found a meaningful hit in this country. And none of those investments include live sports rights, which both Amazon and Disney include in their streaming services.
But the vice president (VP) of content for Netflix India, Monika Shergill, said Indian subscribers are expanding their tastes. They're consuming more international content and more documentaries. Those are areas where Netflix holds a huge advantage over its biggest competitors.
Still, Netflix needs to find a hit Indian series in order to bring in new subscribers. Even with pricing coming down to be more competitive, it still needs to give consumers a reason to sign up in the first place.
Why the big focus on India?
Disney and Amazon's success in India relative to Netflix shows how much potential there is for subscriber growth in the massive country. After disappointing analysts and investors with lower subscriber growth in the first half of the year, Netflix may be looking for ways to boost its subscriber count.
New pricing should bring in new subscribers. Meanwhile, existing subscribers will be automatically upgraded to the next service tier (at the same price they pay today), which could improve subscriber retention rates.
But India presents a long-term opportunity for Netflix or, for that matter, any streaming company. The focus, for now, ought to be on growing the subscriber base as large as possible, especially for a multinational media company like Netflix that generates positive free cash flow overall. Operations in mature markets can subsidize that growth in developing areas. Long term, investments in India should produce positive results with the potential for massive scale and pricing improvements.
