Dropped prices in India as we were overpriced relative to the market: Netflix

Video streaming giant Netflix, which is the costliest entertainment content service in India, has conceded that the service is relatively overpriced in the price-sensitive market. Faced with slower subscriber growth in the country, Netflix, in December 2021, slashed subscription price across plans to step up new customer acquisition.

"We dropped prices in India as we were overpriced relative to the market there. Not necessarily relative to the competition, but relative to the kind of dynamics in that market with disposable income, discretionary income, and income levels," Netflix CFO Spence Neumann said while speaking at the Morgan Stanley Technology, Media & Telecom Conference recently.

Speaking about the video streaming service's pricing strategy, Neumann said that the company is focussed on building a profitable business. "We are pricing for what we believe is the value we provide and what we're rating to and the business we're trying to build. We're building a profitable business."

Netflix, he said, reported an operating profit of $6 billion in 2021. "We were up over $3 billion negative free cash flow last time we were here, breakeven last year, we'll be free cash flow positive this year, so we're looking to build this amazingly successful business."

Asked if Netflix needs to invest more in local programming to grow its penetration in emerging markets, Neumann said there are certain markets, countries like India, Japan, and Korea, where it is focussing more on local content. "Well, I think we're continuing to learn on that. I think it's generally true, but we're getting smarter all the time as we grow. There are certain markets or countries, that we've talked about in the past, that stray a little bit from that where they're more kind of local content. Whether it's Japan, Korea, India," he added.

For Netflix, the success of a show depends on its local impact followed by its ability to travel regionally and globally. "We're trying to be a larger and larger share of TV viewing time in a local market. But that's over a very extended period. The good news is, content travels from anywhere to everywhere, and we're increasingly seeing that," Neumann said.

He also said that the company does not hold firm to the 80:20 content strategy with 80% being the international content produced by Netflix and 20% being the locally produced content. "Content is always a mix of local and global and regional, so I don't want to hold firm to the 80/20. That mix may come down a bit over time in terms of the global, but I think in a healthy way."

Neumann also said Netflix's long-term view about the opportunity in the streaming space remains unchanged. "For us, I'd say that is what we're focused on; building an amazingly successful long-term business and being the first in entertainment around the globe. That long-term opportunity is unchanged. We're as excited as ever. Effectively, the business orient is the internet impacting entertainment around the world. And streaming entertainment is the thing. You can see that more and more time is spent streaming consumption of entertainment."

He noted that most households globally will have connected TVs for consuming entertainment content in their homes. "And we believe over time, we should be in all or most of those homes on the planet. Everything we're seeing in terms of how our business continues to grow into those homes is super encouraging even as the world is competing with us in new ways every day."

Asked if there is any change in Netflix's thinking about advertising, Neumann said advertising is not on the streaming giant's radar, as of now. "For us, it's not like we have religion against advertising, to be clear. As I said, what we're focused on is building, optimizing for long-term revenue, big profit goals, and we want to do it in a way that is a great experience for our members. If at some point, we determine something, we have the right to kind of play or win in the space, and it meets those dimensions, then great. But that's not something that's in our plans right now."

He further stated that subscription is a great business model to scale globally. "We were about a $20 billion revenue business two years ago when we were here, and it is $30 billion revenue now. You kind of see how that's pretty -- the growth is healthy across every region of the world. We have a nice, scalable subscription model. Again, never say never, but it's (advertising) not in our plans. But other folks are learning from it, so it's hard for us to kind of ignore that others are doing it, but for now, it doesn't make sense for us."