Will new tax hurt Netflix subscriptions in Australia?

Will new tax hurt Netflix subscriptions in Australia? Australia has widened the reach of its Goods and Services Tax (GST) to include imported digital products and services. This means that Australian subscribers will now end up paying more for Netflix. Will this hurt Netflix’s plans for Australia? Shashank Venkat explores

Binge watching your favourite shows on Netflix just got more expensive down under. The Australian government has introduced a 10 percent levy on digital goods and services which will come into effect from July 1, 2017. The digital goods tax, also dubbed as the ‘Netflix tax’, will be a squeeze on the 2.8 million Australian Netflix subscribers and apply to all online goods such as videos, games and books.

If this price rise wasn’t bad enough, Netflix has taken the opportunity to introduce additional increases, over and above the Netflix tax. The new subscription pricing will see the basic rate go up to AUD 9.99 a month, two-user HD package rise to AUD 13.99 and the four-user Ultra HD package to AUD 17.99. This effectively means that from next month onwards, premium Australian Netflix users will end up paying 20 percent more for their subscription services.

On its part, Netflix seems to have introduced its own price hike to offset some of the additional costs that it will incur while administering GST. According to news reports, Netflix has said that it adjusted its billing plans to respond to local market changes and offering better services.

This move from the Australian government is aimed squarely at protecting the interests of local businesses like Foxtel and Stan. The inclusion of Netflix under the GST regime levels the playing field for the video streaming service and its local Aussie counterparts, although Netflix still holds the advantage with its globally popular content offerings. The Netflix tax is also expected to generate significant additional tax revenues for the government.

This isn’t the first roadblock Netflix has had to face in Australia. The government is currently also debating whether streaming sites such as Netflix and Amazon Prime Video could be blocked if a certain quota for local content is not maintained. While this would promote Australia’s homegrown entertainment industry, this does hinder Netflix’s own plans for the region as it will affect the flexibility of their content library.

More importantly, it remains to be seen how the Australian market will respond to Netflix’s price rise. Back in 2011, the company lost 800,000 subscribers in the US when it increased its subscription prices. Even in 2016, subscribers didn’t react favourably to a price rise. If history is any indication, then it is fair to expect a bit of backlash from Netflix’s subscribers in Australia too.

But if Netflix plans to keep developing world class content globally, it has no choice but to raise prices to keep its lead in the race to the top for global streaming companies. Otherwise the ongoing cash burn might hit Netflix really hard. Also, from Netflix’s perspective, there has never been a better time to raise prices. With a compelling content library teeming with hit shows like House of Cards, Stranger Things and Orange is the New Black, Netflix has got many customers hooked on its service and it is banking on these customers to remain loyal.

However, the worrisome trend for Netflix is that its growth has been consistently slowing down in the region. The company has to contend with an increasingly crowded marketplace with the presence of global giant Amazon Prime Video and local players like Stan. In addition, the competition is only increasing with more content companies entering the streaming space.

Will Netflix’s rich content library keep subscribers plugged in despite the new price rises? Or will subscribers down under switch to more affordable video streaming options? We are watching with interest.

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