Netflix Price Hike Case Study: Analysis of Australian Market Impact

This case study examines Netflix's price hike in Australia in 2017, analyzing the strategic decision and its impact on the market. The assignment explores the reasons behind the price increase, including the need to offset the Goods and Services Tax (GST) and the company's investment in original content. The analysis covers the changes in subscription prices for different plans and assesses the subscribers' price sensitivity. It compares Netflix's offerings with competitors like Foxtel and Stan, highlighting the factors that contributed to the success of the price hike. The study also includes references to relevant sources such as Broadband TV News, Fortune, and CNET, which support the findings and provide context for the market conditions during the time of the price increase. The study concludes that the price hike was successful because the demand for Netflix was unaffected even with a 20% increase in monthly price.

Running head: ECONOMIC PRINCIPLE
Netflix conducting Price Hike test in Australia and the reasons behind price hike decision
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1ECONOMIC PRINCIPLE
Price hike by Netflix in Australia
In 2017, Netflix, the subscription based video-on-demand service giant, conducted a price
hike test in Australia. The motive behind this test was to evaluate the customers’ perception
about the price and services of Netflix and whether the number of subscribers were getting
reduced due to the price hike. Netflix had around 3.9 million subscribers in Australia during
2017 (Reilly 2017), hence, a minimum price rise would generate a large amount of revenue for
the service provider, given the number of subscribers did not fall. It was also assumed that
Netflix tested the price hike to shift its GST burden of 10% imposed by the Australian
government on intangible and digitized services (Reilly 2017). However, this was not confirmed
by Netflix.
The service provider raised its prices for the new subscribers from $8.99/month to $9.99
on the basic plan, $11.99/month to $13.99 in the standard service and a $3 increase in the
premium plan, from $14.99 to $17.99/month from 1st July 2017 (Huddleston Jr. 2017). In 2019,
the premium plan price was raised to $19.99/month while the other two prices remained same.
During this time, Netflix’s number of subscriber had increased too and reached at 5.3 million in
2019 (Broadband TV News 2019).
From the price hike decision of Netflix, it can be said that Netflix found their subscribers
to be price insensitive for Netflix. In the competitive market, Netflix was ahead of Foxtel and the
local subscription based service, Stan, in terms of their range of product offerings and quality of
streaming. Netflix also informed about their large investment in the Netflix Originals to justify
their price hike. Thus, even if there was a 20% increase in monthly price, the demand for Netflix
was unaffected, making the price hike decision successful for Netflix.

2ECONOMIC PRINCIPLE
References
Broadband TV News, 2019. Australian SVOD Market Reaches 10.2M Paying Subs. [online]
Broadband TV News. Available at: <https://www.broadbandtvnews.com/2019/06/17/australian-
svod-market-reaches-10-2m-paying-subs/> [Accessed 26 March 2020].
Huddleston Jr., T., 2017. Netflix Tested A Price Hike In Australia. [online] Fortune. Available at:
<https://fortune.com/2017/05/15/netflix-price-hike-australia/> [Accessed 26 March 2020].
Reilly, C., 2017. Netflix Quietly Tests Price Hikes In Australia. [online] CNET. Available at:
<https://www.cnet.com/news/netflix-quietly-tests-weekend-price-increases-australia/> [Accessed
26 March 2020].