What happened
Shares of Netflix (NFLX 4.17%) fell Thursday on reports that the streaming giant has been cutting prices in more than 30 countries outside of its core regions in North America and Western Europe. The stock closed the trading day down by 3.4% after having been down by more than 6% at one point during the session.
So what
On Thursday, The Wall Street Journal reported that in the past few weeks, Netflix trimmed its prices in an array of nations in the Middle East, Eastern Europe, Latin America, and the Asia-Pacific region. The cuts are the latest sign of intensifying competition in the ever-expanding streaming sector.
The price cuts were imposed on specific subscription tiers. In some cases, Netflix cut its subscription prices by half.
Notably, many of Netflix's peers have been raising prices in recent months in order to reduce their losses, but the most established streamer seems to be taking the opposite approach in its fight for market share in emerging markets.
Now what
Netflix is not tinkering with prices in its most profitable markets, so these moves may have a limited impact on its bottom line. Management also gave no indication in last month's earnings report that it was considering lowering prices in some markets.
Netflix made a similar move in India in 2021 to help it stay competitive, and also began cracking down on password-sharing recently. In light of that, these price cuts could be designed to entice people who had been accessing the service via the accounts of others to subscribe on their own.
The company's business model is changing rapidly with the recent launch of its advertising-supported tier, and management seems to be testing which pricing models will perform best in the competitive streaming arena.
While the financial impact of the price cuts probably won't be substantial, considering that most of its subscribers are in North America and Western Europe, they could be a sign that Netflix has less pricing power than it had thought, and that seems to be why the stock fell Thursday.
