Netflix slashes prices in over 30 countries, sacrificing revenues for adoption

The news: In a year that’s seen streamers raising prices almost across the board, Netflix is taking a different approach. The company has lowered the cost of subscriptions in more than 30 countries as it tries to keep users with plenty of streaming options signed on.

• The reductions have landed worldwide in regions like Eastern Europe, sub-Saharan Africa, the Middle East, Southeast Asia, and Latin America, per The Wall Street Journal. In some countries, subscription costs were cut as much as 50%.

The road less traveled: At the start of the year, we predicted that most streaming services would implement price hikes in an attempt to increase shrinking revenues, which have become a priority for investors.

• Last year, Netflix’s first-ever subscriber loss ignited a panic about streaming saturation and subscription fatigue. But the rest of the year proved that consumers weren’t willing to cut off their entertainment sources, even as fear of a recession mounted (Netflix co-CEO Greg Peters said the company is a “non-substitutable good”).
• But with prices and uncertainty rising, cracks are starting to show. Disney, Paramount, and others have either raised prices or announced hikes, but the early response has been rough. Disney+ had its first-ever subscriber loss in its fiscal Q1 earlier this month, including decreases in key foreign regions like India, where it shed 6% of Disney+ Hotstar subscribers.
• By lowering its prices, Netflix is making a bet sacrificing short-term revenue gains for stronger adoption in competitive regions. And it might work: Netflix’s brand recognition is strong and consumers frequently rank its catalog as one of the best on offer.

But how long can it last? The dramatic decreases will likely be felt in Netflix’s Q1 earnings, where the market could punish it for dwindling revenues even if subscribers significantly increase.

• As a reminder, Disney stock fell sharply when its Q4 results missed revenue expectations by $1 billion even though it gained more than 12 million subscribers.
• Netflix will have to convince investors that potential revenue losses are worth it to onboard millions of new subscribers, which could sweeten the appeal of advertising with Netflix and prime users for new product releases like its ongoing gaming developments.
• But it’s also possible that the losses won’t be felt so severely: Netflix’s long-awaited password sharing changes kicked into gear this month and could help the company drive up revenues (and even new subscriptions, if empty nesters force their kids to pay for Netflix themselves).

Our take: Reducing prices significantly in so many regions is a risky move in a market that has ruthlessly punished streamers for missing revenue expectations. But if the lower price leads enough consumers to sign on with Netflix, it can make significant gains in foreign markets where its competitors are showing weakness.