Netflix Sets Pricing Based on Local Piracy Rates

Netflix says that the company is pushing down piracy in countries where illegal sharing is prevalent. Part of its strategy is to determine the price of its service based on local piracy rates, so it can better compete in places where piracy is rampant.

netfWith nearly 60 million subscribers globally, Netflix is a giant in the world of online video entertainment.

In terms of providing access to popular TV-shows and movies the company’s biggest competitor is piracy. Just a few weeks ago Netflix described the BitTorrent-powered Popcorn Time as a major threat.

Interestingly, piracy also offers critical business intelligence to the company. For example, it uses local piracy statistics to determine what content it should offer in various regions.

That’s not all though. During this week’s earnings interview Nexflix’s Chief Financial Officer David Wells said that a country’s piracy rate is a main factor in determining the service’s local price.

“Piracy is a governor in terms of our price in high piracy markets outside the US,” Wells explained.

“We wouldn’t want to come out with a high price because there’s a lot of piracy, so we have to compete with that,” Wells added.

Another recurring issue is Netflix policies against VPN usage. While the terms of use have prohibited this for a long time already, the big crackdown on VPN users has yet to begin.

According to Netflix CEO Reed Hastings, VPNs are used by paying customers, which isn’t such a big problem as piracy.

“It’s certainly less bad than piracy,” Hastings said, quickly adding that it’s not something the company encourages.

Ted Sarandos, head of content at Netflix, noted that the company continues to work with the studios to address the VPN issue but that it’s “kind of a whack a mole.”

Instead, Sarandos prefers to focus on the positive battle against piracy, which he believes Netflix is winning.

“The real great news is that in the piracy capitals of the world Netflix is winning. We’re pushing down piracy in those markets by getting access.” Sarandos noted.

With the right pricing Netflix has indeed converted many pirates. The next step is to make VPNs obsolete, by offering content globally without any geographical restrictions.

“The best way to make the VPN issue a complete non issue is through global licensing that we’re continuing to pursue with our partners,” Sarandos said.

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