The Netflix price hike

Even before the pandemic, Netflix had been the most popular streaming service in the Maldives, even with the advent of Disney+, Hulu, and Amazon Prime Video, and given the very low price of roughly MVR200 for the 4K, four screen plan. However, Netflix has once again raised prices, so what does this mean?

Netflix has been increasing their prices for all their plans over the last nine years quite gradually, at 1USD on an average. With over 222 million subscribers worldwide, and growing, this change would mean a very substantial increase in revenue for the streamer, yet the wisdom of this move seem, on the face of it, questionable. With so much competition from other streaming services with exclusive content, it might not be the most effective means of staying competitive, according to traditional thought. Yet, the reality seems to defy this conventional logic.

When Netflix last raised their prices in the US and Canada, by USD2 for the Premium plan and USD1 for the Standard plan, to USD17 and USD13 respectively, they reported no adverse effects on their subscriber base. Instead, the numbers either stayed consistent, or showed a gradual rise. 

New subscriptions for Netflix had slowed in growth until the wildly popular Squid Game series was released after which the numbers resumed their usual, steep climb. Observers have argued that with the increased competition, these lunges in popularity still did not give Netflix the price-setting power over much cheaper offerings; yet these remained theories with the real world effect contradicting this wisdom.

Additionally, when price increases were announced, Netflix had been wary; they had allowed the existing subscriber base to continue paying the same outdated rates while the rate applied for the new subscribers. The company was worried initially of changes to their existing numbers, but with the most recent price hike, caution was thrown to the wind — a thirty day warning email would be sent out to existing customers before the changes take place.

While it is too early to make conclusions of the effect of the pricing now shifting to USD19 for the Premium, and USD15 for Standard, they have brought into force another shift which might explain the, bigger picture, logic.

Streaming services depend mostly on the ARPU, or the Average Revenue Per User, and this number is a defining factor on the successes and shortcomings of different regions with their own prices. The US and Canadian subscriber base makes up over 74 million users, easily being the main source of Netflix revenue from all over the globe. However, ‘attacking’ their largest source seems illogical. 

The counterpoint becomes apparent in how their price changes are not similar across the board, but targeted towards each region. Compared to the 74 million users in North American, there are roughly four million subscribers from India. A month or more earlier, Netflix had actually cut down prices to that region to almost just USD2 for the Basic plan, almost a two dollar drop, and their intentions now seem to make more sense.

Netflix may be looking to maximise and continue increasing their earnings through ARPU in regions where their presence is strongest, and then balance off with the price drops in regions where they would like to expand their presence. They might be looking to increase their revenue in the plan of developing more content, by budgeting billions of USD, over 17 billion in 2021, into production, and to draw in more subscribers through those eventual offerings. 

Additionally, the increase in pricing in certain markets heralded a cool lift of three percent in their share prices in the first quarter of 2022. Further emboldening the streaming giant in a highly competitive market to make bullish moves from a position of power. Netflix seems unhindered today by the comparably cheaper competition options present for their customers.

What this could mean for Maldivian subscribers is that there might be a chance of seeing a price drop in this region as well, rather than an increase, given the current trend — provided Netflix is looking at subscriber saturation regionally instead of on a country-by-country basis. While Maldivians do subscribe to other services as well, piracy has also always been a constant, open secret in the country. A lot of movie-watchers and purveyors of television series have been more consistent in keeping up with their preferred titles through cheaper pirated copies, as the international copyright laws do not seem to extend far enough here. One main reason could be that the population that do ascribe to pirated copies are simply too small in number to even dent the money-making machines that these streaming services are, but also the subtle shift to paid subscriptions have been increasing in time as well.

While Hulu, Amazon Prime Video, and Disney+ are not exactly gaining traction in the Maldivian market — where most often than not access to those service and/or premium content requires VPNs to disguise where the user is accessing the service from —Netflix has become a household name and service all over the country. Either by sharing accounts amongst multiple users or simply using gift-cards to subscribe for short term enjoyment, Maldivians are contributing to the numbers that give Netflix consideration in price changes and service expansion.