Ad-tiers arrive in Latin America but only focus on Brazil and Mexico

The OTT market in Latin America is undergoing a profound transformation. A new segmentation of subscription plans has arrived, with cheaper options that seek to win new customers and complete a new growth cycle. The cheaper plans include advertising as a source of income to compensate for the price reduction. Netflix has already some experience in Latin America with that option, as it launched at the end of 2022. The first results were positive, but the success still doesn't go beyond Brazil and Mexico. Other OTT competitors are also taking action as part of their global strategies, with each platform trying to focus on its specific strength. Although Netflix launched its Ad-tier in Q4 2022, the numbers did not explode until almost a year later. Between Q3 2023 and Q1 2024, Netflix added 4 million new subscribers in Latam, with nearly 79% coming from Brazil and Mexico. While those countries are its two main markets in the region, their specific weight has increased since the emergence of low-cost plans. Ad-tier plans have drastically reduced the barrier to entry of basic plans available in neighbouring countries. In Brazil and Mexico, for example, the Ad-tier is between 53% and 55% cheaper than the Standard plan, the next higher segment, which traditionally accounts for the bulk of accounts. In neighbouring countries, the price differential between these plans was lower and hovered around 29%-40%.  Prices went up first to eventually go down In addition, through the Ad-tier, Netflix reached  a very competitive price level in Brazil and Mexico, compared to other international platforms. Netflix had never before positioned itself as the cheapest option in the market. Since Q3 2023 it has experienced a regional ARPU drop of around 6%. However, this ARPU decline should be analysed in a broader context: since 2022 and until mid-2023, Netflix had progressively been increasing its prices. In 2023, its ARPU was 12% higher than in 2021. There are several lessons to be learned. It was necessary to increase prices to segment customers and to create a lower-income offering. Advertising is not the only element that compensates for the price decrease, at least at an initial stage.   Avalanche of announcements  Netflix's main competitors either launched Ad-tier plan options or will do so soon. This is probably why they all already increased their prices during 2023. And in 2024 they made an even bigger adjustment. Depending on the case, quarterly ARPU jumped by 15% to 23% between Q4 and Q1. This is the prelude to a segmentation that will include low-cost subscription plans.  For the time being, Amazon has chosen to focus only on Mexico, where it stands as the leader among digital retailers, a position that also allowed it...

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