Can Netflix beat Latin America’s pirates?

Netflix (s NFLX) officially launched its streaming service in Brazil on Monday, and the company will roll out in 42 additional countries and territories throughout Latin America and the Caribbean within the next few days, according to a blog post. It’s an ambitious move for Netflix, but it could be even more of a game changer for Hollywood: Piracy has been rampant in much of Latin America, and years of wrangling over international copyright treaties has done little to make the region more profitable for the studios. Will Netflix be able to change that?

Netflix CEO Reed Hastings has long said that his company isn’t primarily competing with cable TV or other paid services but with piracy instead. In Latin America, Netflix faces a major challenge: The region is a piracy hotbed, according to the U.S. Trade Representative (USTR), which has been keeping Argentina, Chile and Venezuela on its priority watch list of piracy worst offenders.

Ten other countries from the region that Netflix is now targeting are on the USTR’s regular watch list, and the agency complains in its most recent 301 Special Report that countries like Guatemala spend too little money enforcing intellectual property laws, that pirated products are widely available in retail stores in Ecuador, and that online piracy is on the rise in Brazil.

Latin piracy by the numbers

The USTR’s report is a little shy on actual details about piracy in the countries it singles out, but a study released earlier this year by the Social Science Research Council helps to provide a little more context into what Netflix is going up against. The study titled Media Piracy in Emerging Economies highlighted Mexico and Brazil and said:

  • 48 percent of Brazilians purchased pirated or counterfeited goods in 2010, according to IPSOS numbers.
  • Mexico is estimated to have up to 70,000 vendors for pirated DVDs and audio CDs.
  • In a Mexican survey, 71 percent of respondents said they had bought pirated DVDs and CDs.
  • Only 2 percent of respondents agreed with the assessment that buying these discs supported “a business based on stealing others’ idea or art.”
  • 71 percent said that price was the biggest factor for piracy.
  • 61 percent said that they have had problems with the quality of pirated audio or video products.
How people pay for The Dark Knight DVD around the world, including adjusted prices based on the "comparative purchasing power." Click chart for bigger version.

It’s all about pricing

The study also highlights pricing discrepancies to show that anything but piracy is oftentimes unaffordable for people in countries like Mexico and Brazil. Consider this: A legitimate copy of The Dark Night on DVD costs $15 in Brazil. Factor in how much money people make and how much they have to spend, and it’s as if the same disc was sold to U.S. consumers for $85.50. Pirated copies, on the other hand, only cost $3.50, which is about the same as $20 when adjusted for comparative purchasing power. (See the chart on the right for all the details.)

How will these pricing issues play out for Netflix? First of all, the company isn’t giving its new markets any break: Netflix is charging consumers in Central America and the Caribbean $7.99, and subscribers in Brazil even have to pay the equivalent of $9 per month. Adjusted for comparative purchasing power, a subscriber in Brazil is asked to fork over the equivalent of $60 every month.

However, the company’s service is self-selective, catering only to people who have access to and can afford broadband Internet. And for this middle class, the pricing doesn’t seem completely out of reach. Consider this: Subscribing to Netflix’s streaming-only plan costs U.S. consumers just a tad more than a bootleg DVD on the streets of Los Angeles or New York. People in Brazil are asked to pay a little less than they’d pay for three bootleg DVDs and still less than one single legitimate DVD would cost them.

This means that pricing-wise, Netflix may just be the first legitimate offering capable of competing with the street vendors in Brazil and beyond. Sure, it won’t be able to attract consumers who can barely afford pirate copies, but its flat-fee model may be a great alternative for middle-class consumers who have been struggling with quality issues of bootleg DVDs.

In the end, it may all come down to licensing. Netflix hasn’t officially said which titles will be made available in Latin America, but a walk-through of the service that made its way to YouTube (hat tip to Richard Greenfield, registration required) shows major studio content from Disney, (s DIS) Paramount (s VIA) and Fox, (s NWS) as well as TV shows like Mad Men and Grey’s Anatomy. Making these titles available with localized subtitles and a flat-fee pricing scheme could go a long way toward beating pirates on their own turf.

Image courtesy of (CC-BY-SA) Flickr user nist6dh.