Netflix: what if boosting subscriptions was the streamer's real goal?

A sign of the major importance of the subject for Netflix, the opening of its streaming service to advertising was carried with a meticulous communication. As the presentation of the quarterly results and the publication of advertising revenues forecasts is about to take place, two key points already emerge from the group's statement: on the one hand, the scale of the launch, since the countries selected account for more than 70% of the group's total subscribers, and on the other hand, the price differential between packages with or without advertising. It repositioned Netflix - almost everywhere - as the best-priced service and allows betting on a strong movement of (re)subscriptions. As for the revenue potential of the ad-supported offer, the accuracy of audience measurements and the level of adequacy of the catalogue represent two major uncertainties. An XL launch and a renewed best-in-class pricing position Although price discounts for the ad-supported option are substantial in all countries, the elements integrated in its calculation remain unclear. The discount varies from -20% in Japan to -42% in South Korea. No convergence can be found between geographically neighbouring markets, as for instance a decrease of -40% is observed in Canada, while it reaches only -30% in the United States; -29% in the United Kingdom, and almost ten points more in Germany with -38%. The correlation between local penetration rates and the difference between the basic package price with or without advertising doesn’t provide more precise answers to explain the significant price differences.  It is worth noting that Netflix chose a large-scale launch for its new offer: with approximately 160 million cumulative customers, the 12 markets concerned represent over 70% of the streamer's total customer base and a country households’ penetration ranging from 11% in Japan to 65% in Australia. In fact, the observation of local competitive contexts in the different countries provides a compelling explanation of the price decisions made. As a consequence of its offers’ price raises in recent years and of the aggressive positioning adopted by its local and global competitors, Netflix has over years gradually lost the price appeal that had been one of the foundations of its success during the 2010 decade. In most of 12 markets selected, its new option allows it to once again display the cheapest SVOD offer. Beyond opening up a new source of revenue, the advertising formula represents a return to basics for Netflix's original marketing mix. And a way of hindering its competitors in their potential intent to raise their prices in response to the insistent calls for improved profitability sent by markets since the beginning of the year. But the route chosen - to create a fourth way to subscribe to Netflix...