Netflix Expected to Bring Mobile-Only Plan to More Markets

Reed Hastings - 2016 The Venetian Las Vegas 2 - Getty - H 2018
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India became the first country in the world where the streaming video giant launched such an offering, costing $2.99 per month, to take on local rivals and drive user growth in a price-sensitive market.

In July, Netflix launched its first mobile-only plan, rolling out a $2.99 (199 rupees) a month offering in India to help boost its reach in a country boasting 478 million smartphone users. In October, the company launched a similar plan in Malaysia at $4.

This year, the streamer is expected to test lower-priced plans in more markets to attract price-sensitive customers in locales where its regular offerings are already available.

The India plan, which became available in July, is the fourth option from Netflix in India. Its basic service costs $7.27 (500 rupees), which goes up to $11.50 (799 rupees) per month for its most expensive premium service. Netflix is still expensive compared to Disney's Indian OTT service Hotstar and Amazon Prime Video. Both services are offered at an annual rate of $14.50 (1,000 rupees), or about $1.20 per month.

While addressing a conference in the capital, Delhi, on a recent trip, Netflix CEO Reed Hastings talked about the company's India strategy, saying that the streaming video giant would spend more than $400 million (30 billion rupees) for the years 2019 and 2020 on local content.

Hastings also touted the company's mobile-only plan, saying: "If we have amazing content from around the world, people are willing to pay for that. ... In the U.S., cable television costs about $75. Here [in India] it’s about $3-$5. In the U.S., people pay $50 for mobile phone access. Pricing is very low here, and the market is very large. That’s why our 199 rupees a month [mobile-only] pricing is very competitive."

In another move to make itself more attractive to Indian consumers, Netflix in December started testing a new multimonth discounted subscription plan, which will be offered to some new members. The discount applies to all plans, including the mobile-only plan in addition to basic, standard and premium subscription offers. When signing up, new users will be offered a three-month plan at a 20 percent discount, a six-month plan at a 30 percent discount and a 12-month plan at a 50 percent discount.

"We believe that our members may value the flexibility that comes from being able to pay for a few months at once," Netflix said in announcing the offer. "As always, this is a test, and we will only introduce it more broadly if people find it useful."

So has the mobile-only plan helped crack the market for Netflix? It is hard to say given that Netflix has never disclosed its Indian subscriber count, but observers say it has been a boost for the global giant in the country. Netflix chief product officer Greg Peters in October told analysts that the plan was "performing better than we tested."

Mihir Shah, Media Partners Asia vice president for India, tells The Hollywood Reporter that the streamer had "a slow start to 2019 with about 1 million subscribers," and "we project Netflix to close the year with 2 million direct paying subscribers in India. Over 50 percent of incremental additions during the year can be attributed to the introduction of the mobile-only plan. Netflix has done well to complement the new subscription tier with a slew of new local originals and stronger marketing push."

But Shah doesn't think that mobile-only customers will outstrip Netflix's primary subscriber base paying for the higher-priced plans. "We believe the mobile-only plan will serve as a funnel to address a wider target market with an intent to upsell these subscribers to higher-value packs," he adds.

As for the potential of mobile-only users migrating to the higher-priced subscriptions, MPA executive director Vivek Couto tells THR that "while a significant demand has been reached for mobile early, it’s too early to say how many have or will move to higher average revenue per user (ARPU) tiers."

Back in July at the official unveiling of the plan in Delhi, Netflix director of product innovation Ajay Arora explained why the streamer was launching its mobile-only offering this way: "Our members in India watch more on their mobiles than members anywhere else in the world — and they love to download our shows and films." He added that the new plan "will make Netflix even more accessible and better suit people who like to watch on their smartphones and tablets — both on the go and at home."

A recent report by consultancy Ernst and Young India highlighted that Indians spend 30 percent of their phone time, and more than 70 percent of their mobile data usage, on entertainment.

But even though India is a rising economic power, the fact remains that the second-most-populous nation on Earth with 1.3 billion people has numerous social classes and income groups, making it a price-sensitive market. According to World Bank data, India's GDP per capita was $2,015 in 2018, placing the country in the 145th spot in in world rankings. In comparison, GDP per capita in the U.S. was at $62,641 for the same period.

With a plethora of free and advertising VOD (AVOD) content, such as on YouTube and even on platforms like Hotstar (which offers both premium and AVOD options), Indian consumers already have much choice on their mobiles.

Knowing that it has its task cut out when it comes to attracting Indian consumers beyond just offering cheaper pricing options, Netflix has been aggressively building its Indian content offerings, inking alliances with major Bollywood power players. These include alliances with superstar Shah Rukh Khan's banner Red Chillies Entertainment and even an exclusive deal with Dharmatic Entertainment, the digital content arm of veteran banner Dharma Productions headed by top filmmaker Karan Johar.

Taking a slightly long-term view on Netflix's mobile-only plan, Couto says that "next year, we expect Netflix to provide even more glue to the mobile-only plans in terms of pricing, flexibility and content — this strategy has a long way to play out."

Late in the year, Netflix started taking its pricing experiments beyond India. It unveiled a mobile-only plan in Malaysia in October, which costs $4.06 (17 ringgit) per month, adding another option to its menu in the country that includes a basic rate subscription plan at $7.90 (33 ringgit), a $10.04 (42 ringgit) standard plan and a $12.19 (51 ringgit) premium plan. "Netflix members in Malaysia already watch twice as much content on their phones as the average member,” the streaming giant explained when launching the offer.

Wall Street analysts also say Netflix will bring lower pricing options to more international markets over time. "As Netflix continues to pursue global growth, we expect the company will experiment with and in multiple cases deploy lower price point offers to expand the user base," Guggenheim analyst Michael Morris wrote in a Dec. 17 report.

While analysts aren't sure where more mobile-only plans could make sense, a couple mentioned additional Asian markets. Cowen analyst John Blackledge in a Dec. 18 report said that Netflix's disclosure of regional subscriber figures showed "lower than expected" figures for the Asia-Pacific region, "which leaves more runway for growth than we had expected in one of Netflix's relatively newer regions." 

Management has signaled it will test alternative service plans in foreign markets to tailor offerings to local conditions. "We are operating in markets that have very, very different conditions, very different levels of affluence and other forms of entertainment competition etc," Peters said in October. "And so we've been very, very happy with the mobile plan. ... We'll look at testing that in other markets, too, because we think there are other markets, which have similar conditions that make it likely that's going to be successful for us there as well."

A version of this story appears in the Jan. 3 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.