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Netflix Is Launching a Low-Priced Plan in India

Adam Levy, The Motley Fool

Despite its hopes of reaching 100 million subscribers in India, Netflix (NASDAQ: NFLX) remains a relatively niche product in the country. Most estimates put its subscriber base in India somewhere between 1 million and 2 million.

The company's biggest challenge is its pricing. Netflix's monthly price can climb nearly as high as the annual prices for some of its biggest rivals in the country.

Earlier this year, Netflix started testing a less expensive mobile-only plan in the country. With the release of its second-quarter results, the company confirmed it's making the plan available to everyone in India this quarter. The move could accelerate the momentum the company's created over the last year or so, and it may lead to valuable partnerships that would give a further boost to subscriber growth in the country.

The entrance to a Netflix office building.

Image source: Netflix.

Building a fan base

India is a massive long-term opportunity for streaming-video subscriptions. Subscription video on demand revenue is expected to climb from $500 million last year to $5 billion in 2023. That's fueled by the continued expansion of internet access, particularly through mobile phones, in the world's second-most-populous country.

But for Netflix to grab a share of that $5 billion market opportunity, it needs to establish a fan base. It's increased spending on local content faster than in any other market, but that content doesn't do it any good if nobody's watching it and telling their friends about it.

"We think we need to have a lower-price offering on to improve the accessibility, but also one that complements the existing tiering structure that we have," product chief Greg Peters said on the company's second-quarter earnings call. "So, we can broaden the audience that can love that content, enjoy the content that Ted's team is making, and that's great because like when we launch Sacred Games season 2 and we have a bigger audience for it, that means we can create more social buzz and more excitement about that show."

Netflix has recently relied more on originals to drive subscriber growth. That's especially true in international markets like India, where its licensed content library isn't as robust as it is in legacy markets. The company has increased its marketing spend to draw more attention to its originals, but it really gets the biggest boost from series and films that generate significant amounts of buzz on the internet and in social circles -- watercooler series, if you will.

Netflix's content investments in India, coupled with an opportunity for consumers to access that content at a more affordable price ought to help build that buzz over the long term. "Growth in that country is a marathon. So we're in it for the long haul and we're seeing nice steady progress," Chief Content Officer Ted Sarandos said.

If Netflix can establish a substantial subscriber base now, it may have an opportunity to raise prices in the future just as it's done in its more established markets over the past few years.

Partnership opportunities

A less expensive Netflix plan also opens up the opportunity for Netflix to partner with wireless carriers to bundle the streaming service with customers' wireless bills. Partnerships with wireless carriers and pay-TV providers have become a key part of Netflix's strategy to keep growing in more saturated markets like the U.S. The same bundling strategy ought to work in India as well, and Peters told analysts the company is working on those partnerships.

Some Indian wireless carriers have offered free Netflix subscriptions for limited periods with certain subscription plans in order to attract or retain subscribers. The option for a mobile-only plan could make it more affordable for a carrier to offer the service as part of a subscription on a permanent basis. That has the potential to skyrocket Netflix's popularity in the country.

Even if Netflix has to take a hit on revenue per subscriber, growing the subscriber base in India through partnerships and a mobile-only plan is its best path to capitalizing on the massive long-term opportunity in the country.

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Adam Levy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Netflix. The Motley Fool has a disclosure policy.