Netflix determines subscription price based on volume of piracy

In an interview about the company’s results in the first quarter of 2015, Netflix’s head of financial operations, David Wells, clarified that one of the main factors in determining the price of his service is the amount of piracy in the country.

In the conversation, Wells commented that “piracy is a determining factor in our pricing” in markets outside the United States. “We would not like to debut at a very high price because there is a lot of piracy, so we need to compete with that,” he added.

The company’s head of content, Ted Sarandos, also commented that “in the piracy capitals of the world, Netflix is ​​winning”, suggesting that the service helps to reduce piracy in the regions where it reaches.

According to the company’s CEO and co-founder, ReedHastings, the company also intends to discourage and combat the use of VPNs (Virtual Private Networks) to watch its content. The resource allows users from countries where Netflix does not operate to use the service. Netflix recently changed its terms of service, opening up the possibility to alert and ban users who use to use the service.

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Hastings believes that “consumers in every country in the world want the price and selection benefits” that Netflix offers, which makes him confident about the company’s financial future. He points out that, two years ago, the company recorded 4 billion hours of viewing its users in the first quarter; in the same period that year, it was 10 billion hours.

The company also commented that it managed to increase its profit margin, as the company’s international expansion created a situation in which its sales revenue grew faster than its cost structure. The company aims to reach a profit margin of 40% by 2020.

During the interview, Sarandos also revealed that Netflix’s original attractions offer a higher return, for money invested, than content licensed from third parties. For Sarandos, this is an investment “not only strategic, but also efficient”.

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Regarding the future of Netflix, Hastings comments that the company is “learning to use real-time video while browsing”, to speed up the loading of selected content and improve the browsing experience. The CEO, however, considers this to be merely “symbolic” with respect to the “hundred improvements per quarter” that the company promises to offer to improve the use of the service.

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