New Netflix strategy suggests beginning of the end for account sharing

Account sharing has been a real pain point for the financial sector when forecasting performance indicators for the major streaming services. Now Netflix, the most scrutinized of the bunch, has taken the bull by the horns by launching a single-device, mobile-only subscription in Malaysia – at half the price of its basic plan.

As soon as Netflix’s Asia Pacific invasion began in late 2015, continuing through early 2016, we predicted an eventual shake up of its pricing structure – as waltzing into such a diverse region priced higher than everything around it and expecting instant domination was never realistic. Following its Malaysian move this week, there is an overwhelming temptation here at Faultline Online Reporter to project the start of gradual phasing out of the account sharing phenomenon, with Netflix as the trendsetter, although we are doubtful the SVoD giant will be implementing a controversial single screen policy in the US anytime soon.

Still, this week’s move is not so much about stopping those pesky account sharers, but to attack a new market altogether by taking on the established local streaming services – some of which are priced as low as $3 a month – a strategy not required by Netflix in more developed corners of the world.

The new disruptive Netflix product in Malaysia costs just $4 a month, allowing only for SD streaming on mobile devices, although the company is yet to specify if this includes tablets or is exclusive to smartphones. The two-device basic subscription plan remains priced at $7.90 a month, while a standard plan costs $10 a month, and the premium package allowing up to four screens costs a little over $12 a month, as first reported by local news outlet The Star. Get familiar with the new lineup of Netflix packages pictured below, it might be arriving elsewhere sooner than we think.

Basic package prices vary across Netflix’s Asia Pacific footprint, but the basic tier typically costs $8 a month on average, so we can assume Netflix has an Asia Pacific ARPU of roughly $8 which will now start slipping as subscribers take up the $4 a month offering. But it can afford to do so, with an international margin growing much faster than domestically, rising from just 4.7% in Q3 2017 to 17.1% in Q3 2018.

International sales wowed in its third quarter results, with contribution profit spiking 442% in a year to $338.1 million, on revenues of $1.97 billion, compared to a domestic profit of $762 million from $1.94 billion revenue. It speaks volumes that international profit for the first quarter of this year exceeded international profit for all of last year, as it nears 80 million overseas subscribers helped by its increased investments in local original content.

Considering it saw nearly 5.9 million international additions last quarter, including free trialists, Netflix could bat its own estimations out of the park come its full year 2018 results, with a new wave of subscribers from lower earning households keeping its international profit margin on the right path despite a lower ARPU.

Yet even $4 a month could be too pricey for a country like India, where a cable or satellite pay TV subscription can cost about $3 a month, the same as local streaming services in India like Viu and Hooq. But even these look expensive when accounting for YuppTV, a new live and on-demand OTT entrant costing a miniscule $1.53 a month – evidence of the video price war raging in India which Netflix has now fueled even further.

Netflix has confirmed that its new cut price mobile subscription will be rolling out across “a few countries” but is yet to confirm which. After Asia Pacific, Africa and the Middle East could be next, before perhaps reaching Eastern Europe. In a number of years, a competitively priced single-screen Netflix subscription designed specifically for smartphones could become as normal as account sharing is today – singlehandedly driving the mobile-first OTT video market to new heights. It will also allow Netflix to partner more directly with mobile only operators.

In that sense, the Netflix of the future could look more like Spotify, which allows accounts to be accessed on different devices but does not allow for simultaneous streaming.