Understanding Pricing — Market fit through examples of Netflix & Hotstar

This article illustrates how different pricing models fit with your market & GTM through the examples of Disney’s Hotstar & Netflix.

Disney’s Hotstar

Hotstar has a combination of ad-supported content, freemium flywheel, upfront payment all rolled into its pricing. But the beauty is that Hotstar has feature-fenced its product to align with the TG which allows it to monetize each fenced component differently without creating much confusion for users. We will try to understand how Hotstar did it.

Let’s start with product & market: Hotstar has a lot of variety of content (both TV shows, movies, and live streaming of sports, news) in the English & Indian regional languages. TG for both of these content appears to be different.

English language content & its TG: English language content is mostly global content. It has urban appeal in India with TG between the ages group 20–40. These users do not watch old-style television shows and spend significant time browsing the internet. For entertainment, they watch web series, HBO shows & Hollywood movies. This content is offered under ‘Hotstar Premium’ subscription i.e. accessible to only paid users.

Indian language content & its TG: It includes primarily TV, old cricket matches & news those are exactly the same shows which are streamed through TV. TG for this content are people living in tier 2, 3 towns, or non-English speaking users in metros. These users already spend significant time watching Television shows. But internet penetration is rapidly increasing among them (thanks to Jio) and they are rapidly consuming video content on YouTube etc.

Will this user segment pay to watch the content on Hotstar? Most likely No. They can watch shows on TV anyways. Hotstar wants to move this audience from TV to its platform. The habit of watching content on OTT needs to be developed and hence freemium makes sense.

Over time expectations would be that these freemium users would start paying and upgrade to paid plans. So will users move from freemium to Hotstar premium? Again most likely no.

Let’s revisit what habit we are inculcating through the freemium plan — is it the habit of watching premium English shows? or habit of watching content on OTT?

The first habit is difficult to build. The first barrier is the language itself and the second one is users’ taste is an innate characteristic. Users develop taste for content based on multiple factors e.g. their life experiences, culture, education, etc.

The second habit is relatively easier given physical infrastructure is in place i.e. data is cheap & people are spending time on the internet watching videos on social media. Now the question is, can users be moved from TV to Hotstar for watching their favorite shows & news? And hence the freemium pricing model makes sense for Hotstar.

One may argue that How would Hotstar plan to monetize these freemium users? One option is obviously showing ads that Hotstar does but that comes at the cost of user experience. So let’s reverse the question, what additional content that Hotstar provides which users may find appealing and hence pay for it?

The users watching content in regional language also watch the latest released Bollywood movies, live sports but these are by design watched at a lesser frequency. And that’s exactly what Hotstar VIP includes. And to justify lower usage frequency, these are priced significantly cheaper than the original premium plan. VIP was introduced much later in 2019.

Observe that the only two things which differ between Hotstar VIP and Hotstar Premium are: (a) Disney & Kids content in English
(b) American shows & movies

Shows the difference between VIP & Premium

Conclusion: Hotstar has feature-fenced its product to align with the TG which allows it to acquire & monetize each fenced component differently. Freemium flywheel is helping. acquire users who watch regional language content.


Netflix offers 30-day-free-trial

Let’s look at product & market: Netflix offers global content & its signature content has been in the English language. It has urban appeal in India with TG between the age group 20–40. These users do not watch old-style television. Similar to Hotstar’s Premium.

Does Netflix need to create a habit for this market? One may ask a habit of what? — is it the habit of watching English TV shows? or habit of watching content on OTT?

Given Netflix’s TG the answers for both would be ‘No’. Netflix does not need to create any of these habits for its TG. Through free-trial, it gives a flavor of its offering, users can decide to continue or not-continue after trying it.

One may argue that why free-trial over freemium? Even if there is no need to develop the habit, let users watch a few shows & movies for free forever? The benefit of free trial is that customers get a chance to experience the complete product. Think about this, you log in to Netflix and see a few useless shows forever vs its best shows for a month? Which one would make you pay?

So if there is no need for developing habits around the product, freemium might be counterproductive.

Should Netflix not introduce the freemium model to tap markets in tier 2 and tier 3 markets in India?

We know it is a global company so the question is, can it afford to have a different pricing strategy for a country? Absolutely yes, given sheer volume which India provides. In fact, Netflix has been considering that. Check here

The point to note is that the freemium strategy needs to be supported with the right content for the target audience. And, Netflix obviously knows that and they will figure it out.

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