Netflix is clearly leading the American online streaming market. It had to, for the content and options it provides are much better than what its competitors offer. To better their business model, Netflix introduced customized shows that aren’t accessible anywhere else. The team managing the company marketed the shows extensively, and eventually, these shows became the rage on social media, thus boosting the sale of Netflix subscriptions.
However, one thing that Netflix’s business model lacks is that the group has presented a product most people need at a cost only the elite could afford. YouTube is free and Amazon Prime, Hulu, etc are way cheaper than Netflix. While Netflix is still a better option, budget clients would avoid spending the extra money on it. Imagine if you need to monetize your website on Netflix, the targeted advertisements would be very profitable. As an example, YouTube has a lot of content, and the best way they could decide what ads could appeal to a user is by judging the keywords. However, Netflix has fixed shows and the ads could be manually decided upon for each show. This could help with a better experience for both users and advertisers.
Interestingly, 20% of Netflix’s user base is from outside the US and the app has had moderate success in third-world countries. It is trying to establish itself in the east, and the cost of the app is perhaps the biggest hurdle in appealing to the masses there. People cannot afford such an expensive app no matter how appealing it might sound. The majority of the population is poor, and even the middle-class find it difficult to invest in paid media. Rather, when the Indian government tried to introduce Set Top boxes for Pay Channels in India, users shifted to Free-to-air channels in protest.
Jeff Green, the CEO of The Trade Desk has speculated that Netflix might consider running ads for users who wish to access the app for free. YouTube has already tried this model. They have a paid option for users who wish to use the app without advertisements and the other one is free for everyone.
The reason Netflix was hesitant to bring forward this model is that their subscription rates are high and merely ads cannot cover the loss with a similar user base. However, the userbase would definitely not remain similar once they make Netflix free of cost.
Consider the Indian market for example. India has the second largest English-speaking population and a very huge netizen base. Yet, the majority are unable to afford the Rs500 per month Netflix plan. The Indian middle-class cannot be compared to the American middle-class in spending power. Thus, most users prefer to watch their shows on YouTube instead of paid apps like Amazon Prime and Netflix.
However, Amazon Prime managed to create a market of its own due to 2 reasons: 1. The Prime subscription is one that people use for the Amazon products website. 2. The subscription is priced at Rs 500/year, which is pretty cheap compared to Netflix. Now, Netflix appeals a lot more to the Indian audience after introducing customized shows like Sacred Games, etc, but it is doubtful they would make a substantial profit here by ignoring the many users who would watch it for free.
If Netflix permits free viewers to watch their programs in return for ads, it would expand their userbase many times (eg. 10 times or 20 times). It is for the company to decide whether the risk is worth it or not.
Another issue while introducing the programs in eastern countries is while they could increase their user base significantly in those countries, western users readily buying their subscriptions would stop buying it since they would be getting for free. Even if Netflix uses location settings, users in the West could simply access the free shows using a VPN connection.
Netflix has been envious of YouTube’s reach. While 80% of Netflix’s users are from the US, 80% of YouTube’s users are from outside the US. Netflix has been trying to work upon expanding its reach abroad by localizing its show, however, the dissimilar market requirements prevent it from capturing those markets.
YouTube and Netflix and not in competition. YouTube does not allow copyright content like movies and shows and most of the content is user generated. Netflix is exactly opposite with its approach. Thus, it is not certain content owners would allow Netflix to modify its model for the little pay, especially knowing that once the changes are made, they cannot be reverted.
The team at Netflix could be worried that making their channel free could harm its elite status. This would mean Netflix would run in competition with the many series on YouTube. Whatever they decide would probably be after a lot of research.