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  • Writer's pictureNikhil Kotcharlakota

Usage-based Pricing

Usage-based pricing is on the rise.


Where could this have been used recently?


Netflix recently announced a new lower pricing tier that

comes with ads.


Clearly, this was due to a decline in subscribers.

The ad-based model was intended to boost revenue.


In my opinion, Netflix should've developed their new pricing based on usage instead.


According to Netflix's data, global average daily usage per subscriber is 3.2 hours and usage among US adults was 30 minutes per day on average.


I would have thought more subscribers would have maintained their subscriptions if Netflix's lowest pricing tier had been based on usage.


This way Netflix would’ve continued its original concept or vision of distraction free viewing and retained subscribers who do not want to pay the flat fee.


Netflix could’ve gone the video on demand (VOD) option as well, giving the lowest tier at a very low subscription fee with a limit on usage (time), again with no ads.


Yes, this will result in a loss of ad revenue, but if active users or subscribers are a metric most industries track and Netflix's stock price is affected based on this, usage-based pricing makes more sense.


It is likely Netflix considered all these options, but the ad-based model would have generated the most revenue in the short term. Going the ad-based route, however, might cause long-term damage. There are a lot more options now, so I think anyone in the ad-based tier will eventually leave or not renew their subscription.


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