Netflix Global Pricing Strategy, 2022 - S&P Global Market Intelligence

10/14/23, 8:01 PM Netflix global pricing strategy, 2022 | S&P Global Market Intelligence
RESEARCH — 16 Dec, 2022
Netflix global pricing

strategy, 2022
 
Author Seth Shafer, Jessica Fuk, Kym Nator, Michail Chandakas

Theme Technology, Media & Telecom
Tags S&P CapitalIQ Pro, Kagan
With its international expansion largely complete by 2016, Netflix has turned to a wide array
of pricing strategies across markets in subsequent years as it looks to balance subscriber
growth and profits. Global streamers face a variety of challenges — including service
affordability, broadband availability and pricing of rival services — that vary widely from
market to market and make a one-size-fits-all approach to pricing nearly impossible.
* Netflix has aggressively raised prices over the years in many of its top markets by total
subscribers, especially in markets where it emerged early on as the dominant streaming
video subscription service.
* Price hikes have generally been more frequent and steeper for Netflix's Standard and
Premium tiers as the company has been more hesitant to bump up pricing for the entry-level
Basic plan. The introduction of its new Basic with Ads offering in select markets could see
Netflix become more willing to charge more for its Basic ad-free service now that it has a
less expensive entry-level tier for price-conscious consumers.
* Netflix's rivals on the global stage, including Walt Disney Co., Warner Bros. Discovery Inc.
and Paramount Global, could borrow from Netflix's pricing strategies as they look to grow
average revenues per user across their respective streaming divisions and push toward
profitability.
Netflix has not been shy about bumping up pricing in its 10 largest markets by subscribers,
with the U.S., Canada and Mexico leading the way with 10 or more price hikes across tiers in
each market since 2016. Every major market, except for South Korea, has experienced at
https://www.spglobal.com/marketintelligence/en/news-insights/research/netflix-global-pricing-strategy-2022 1/7
least five price increases in the 2016-2022 time frame. Price bumps were generally more
frequent for Netflix's Standard and Premium tiers, likely due to a reluctance to ratchet up
Basic tier plans too quickly for fear of pricing out new subscribers in some markets.
Netflix's top 10 markets accounted for an estimated 71% of total subscribers as of June, led
by the U.S. (29.8% of subscribers), Brazil (7.6%) and the U.K. (7.5%). Focusing price increases
in its largest markets is not only the quickest path to boosting profits but also reflects where
the company has a sizable market share and is deeply embedded in the viewing habits of
consumers, making churn due to higher prices less likely.
Please note that pricing changes detailed here are for publicly announced changes and are
for the year that pricing changes went into effect, which may differ in some cases from the
year a planned pricing change was announced. Pricing changes are for permanent changes
and do not include short-term promotional offers or special pricing made available through
third-party services.
As far as the magnitude of price hikes in major markets, the Premium tier has seen the
largest percentage increase since 2016 in every market, except for Japan. Pricing of the
Premium tier in 2022 in Brazil and Mexico was nearly 90% higher versus 2016 pricing while
the U.K., the U.S. and Canada also saw the Premium tier rise by about 67% to 78%. Standard
tier pricing also soared by 50% or more in Brazil, Mexico, Canada, Japan and the U.S.
Price gains for the Basic plan over time were much more sedate, including two markets —
Germany and South Korea — where the price of Netflix's Basic plan has remained
unchanged since 2016. Japan was the only market where the Basic tier piece increased by
50% or more, with most markets seeing an increase in the 15% to 30% range. With the
addition of the cheaper Basic with Ads plan across select markets beginning in late 2022,
the ad-free Basic tier could rise in price in some markets where Netflix has been holding its
price relatively stable over time.
The frequency and size of price increases across North American markets — which
encompass nearly 40% of Netflix's total global subs — show a range of strategies. Price
hikes in the U.S. have generally been in the 10% to 15% range, with the latest wave coming in
2022. Canada saw sizable jumps across all tiers in 2017 and 2018, but increases since have
been far more moderate and focused on Standard and Premium plans. Mexico experienced
three straight years of price bumps in 2019-2021 but none in 2022.
Netflix's pricing strategy in 2023 and beyond could employ a similar market-to-market
approach globally, especially if macroeconomic pressures and inflation keep rising.
Individual price hikes of 20% or greater are likely a thing of the past and future increases
could be more in the roughly 10% to 12% range common in 2021 and 2022.
A strong correlation exists between the frequency of price changes in the Standard plan
since 2016 and the share of the mid-2022 paid member base the service had already
acquired at the end of 2016. This shows that decision-makers at Netflix had more
confidence in charging consumers more in markets where by 2016 the service had at least
two-thirds of its June 2022 base, namely the U.S. with 73%, Canada with 67%, the U.K. with
39% and Mexico with 36%. On the other hand, markets such as South Korea and Japan,
which saw over 90% of their customers joining in during the last six years, only encountered
one and two price hikes respectively.
Our summary findings reveal that 25 out of 31 markets, or 81%, saw the price of the entry-
level tier rising by less than 25%. This could indicate that subscribers to the Basic plan are
price-elastic and potentially more likely to churn out and drop the service versus subscribers
to Standard and Premium plans. On the other hand, as we move toward the more expensive
tiers, the distribution shifts to larger percentage price increases, with 45% of the Premium
subscribers across all 31 markets having seen their monthly cost rising over 50% over the
past six years.
Compared to price hikes in other markets, Netflix's pricing strategy in India moved in the
opposite direction. In response to the streamer's "frustrating" performance in India, as Reed
Hastings commented in January 2022, the streamer significantly lowered the subscription
fees of all its tiers with the biggest cut of 60.1% applied to the Basic plan in December 2021.
The streaming giant has failed to secure a leading position in the market despite having
launched a mobile tier at a lower price in 2019.
The latest price cut narrowed the pricing gap between Netflix and its competitors, but
Netflix's Mobile pack remains the most expensive entry plan in India. Rivals have utilized the
pricing gap and gradually raised prices to a level that is still more affordable than a Netflix
subscription.
Although pricing levels have varied around the globe, a Netflix subscription has generally
remained within the means of average consumers in most markets, based on our
affordability index, which measures subscription fees as a percentage of the market's
estimated per capita gross national income purchasing power parity, or GNI PPP, for 2022.
Note that having a lower value reflects better affordability.
According to our analysis, Netflix is slightly more expensive in select emerging markets,
where estimated per capita GNI PPP clocked in below $2,000 per month in 2022. As seen in
countries like India and Indonesia, the streamer initially charged fees that had typically been
around two to three times higher than other competitors when it first launched. Adopting a
premium pricing strategy in markets with more price-conscious consumers due to lower
incomes arguably limited the streamer's reach and contributed to its slow start, which
prompted a change in strategy.
The rollout of a mobile-only plan contributed to improving accessibility in Indonesia, as

entry-level affordability for the service in the market dropped to about 0.3% compared to
1.1% for the Basic plan. Netflix's move to slash its subscription fees in India also cut
affordability for the Basic plan to just 0.4% versus 1.1% based on previous pricing.
The Basic subscription plan registered a 0.2% in our affordability index for most of the
markets where estimated per capita GNI PPP exceeded $3,000 per month in 2022. Unlike in
most emerging markets, Netflix's Basic tier in some of these more developed markets tends
to be priced lower than what competitors like Disney+ charge, but the streamer also offers
subscriptions to more expensive Standard and Premium plans that provide varying access to
features like simultaneous streams, content formats and offline downloads, among others.
Of note, Netflix has kept the difference in affordability between its Standard and Premium
plans considerably smaller compared to emerging markets, likely to encourage users with
higher capacity to pay to upgrade for better features, which could help boost ARPUs and
profitability.
Economics of Internet is a regular feature from Kagan, a media research group within S&P
Global Market Intelligence's TMT offering, providing exclusive research and commentary.
This article was published by S&P Global Market Intelligence and not by S&P Global Ratings,
which is a separately managed division of S&P Global.

Netflix Global Pricing Strategy, 2022 - S&P Global Market Intelligence

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Netflix Global Pricing Strategy, 2022 - S&P Global Market Intelligence

Uploaded by

Copyright:

Available Formats

10/14/23, 8:01 PM Netflix global pricing strategy, 2022 | S&P Global Market Intelligence

RESEARCH — 16 Dec, 2022

Netflix global pricing

Author Seth Shafer, Jessica Fuk, Kym Nator, Michail Chandakas

The rollout of a mobile-only plan contributed to improving accessibility in Indonesia, as

You might also like