OTT giant Netflix which had consistently taken an anti-ad stance has succumbed, and is introducing a new streaming plan supported by commercials in 12 countries, including the US, Germany, Japan and South Korea, in November. Surprisingly, it has left out cost-conscious and underpenetrated India from this “Basic with Ads” plan.
The streaming plan with advertising will cost roughly $7 per month, at least $3 less than its current lowest priced tariff.
Low ARPU in India
Analysts feel that India may have been left out from the initial deployment probably because it does not currently generate substantive ARPUs (average revenue per users) to justify further price reductions.
In December 2021, in a bid to make pricing comparable to other OTT players in the substantively competitive Indian market, Netflix had announced a drastic 60 per cent price cut in India. The aim of the new pricing package was to garner additional subscribers in tier-2 and tier-3 markets in India. At the time of launching the base package of ₹199 in India, Netflix CEO, Reed Hastings had stated that the streaming company is “still figuring things out in the India market”. Experts have noted that these endeavours have likely boosted Netflix’s subscriber base in India substantively to 5-8 million (as per estimates), however, ARPUs in India likely saw a significant hit as a result.
At the same time, Netflix has been struggling to boost its subscriber base globally. In fact, the streaming giant had a loss of 2 lakh subscribers for the first time in April, the first time in a decade that the company reported such massive degrowth. In the earnings call in April, Hastings had hinted that the company was open to offering an ad-supported plan.
By utilising the ad-supported tier, Netflix can offer subscriptions at a lower price with the costs being offset by the monetisation coming through ads. Premium subscribers can opt out of ads, however.
As per a statement shared with businessline, the November launch of the ad-supported tier is an initial one, and this pricing plan will subsequently expand to other countries. “We’re launching in 12 countries only and it won’t be available in India. As we learn from and improve Basic with Ads, we’ll look to launch in more countries over time. In India, consumers can choose from our four existing plans.”
According to Karan Taurani of Elara Capital, “It is likely that Netflix is garnering minimal ARPUs from the Indian market, especially after taking price cuts to make their service competitive. This is why the company cannot afford to make further deductions in its plans to offer an ad-supported tier. After testing the tier in global markets, Netflix can introduce this plan in India instead of increasing its tariffs. This means that it can add the ad-supported tier to its lowest plans, meanwhile, top tier subscribers can pay a premium to avoid ads.”