Blog Post

Can Netflix beat Latin America’s pirates?

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

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.

13 Responses to “Can Netflix beat Latin America’s pirates?”

  1. Carlos Alfonso Castro

    I like this article, in these countries, the salary is not enough. if you wanted to buy a legal copy cost you up to 4 working days. Can you imagine someone in the U.S. paying 320-400 dollars for a movie? is a madness. Our countries are very poor. If I buy a pizza I am investing 4 days minimum wage too. A McDonald’s hamburger cost me a working day salary. These companies should adjust prices to our realities if they want to enter our markets. If they can not. It would be better for them not to come to these impoverished countries. We got nothing and only a few families are rich or multi millionaire and have been since colonial times (In El Salvador, 80%-90% of the wealth is controlled by 14 families), and they think they are the masters of our countries and we work like dogs in their businesses and exploit us. Corruption is another problem, politicians do business with the rich and also profit from poor people. Sorry for turning this into a social complaint. It is our reality. But piracy is not the source of the evils nor the Internet as someone said in a commentary. The problem has deeper roots, you could cut the internet and hackers and pirates would always find a way. The problem is poverty and inequality. And the only thing they do is take advantage of that. Poverty is like a gold mine for them, fertil soil. Unless we are like Europe, pirates and hackers will always walking around, but even in those rich countries have “The Pirate Bay” Am i wrong?

  2. Gelson Valladares

    im from latin america, and ill get netflix as soon as it gets here -El Salvador- i want to watch “married with children” “seinfeld” , etc. the price will be $8 per month, so the price wont be a big deal.

  3. I live in central america, and piracy is the ONLY way we have access to some forms of entertainment. There are no shops to buy DVDs or CDs, ocassionally they have the latest blockbuster film at about $20. This Netflix deal is exciting, I’d rather pay some fee, using torrents can be tricky sometimes, and dangerous, but still is our only chance at watching your favorite TV show or movie. It’s also interesting the writer mentions little government involvement protecting intelectual property, if you take a look at our news headlines, you’ll know why: ultra high murder rates, robberies, kidnappings, riots, gangs, drug dealing…

  4. Marco Porcho

    Another Brazilian here. Most Brazilians don’t have broadband access to the Internet, and even those who do can only afford low-speed connections – 2 Mb or less. Netflix recommends at least 3 Mb.
    So we have the following scenario: I can watch a laggy, old movie with Netflix, or I can wait a couple of hours and dowload a new movie using torrent.
    The piracy issue is not a simple matter of pricing in Brazil. It has to do with infrastructure, too.

  5. Jaime Ruiz

    Netflix will win this battle if the selection is comparable to the what one can find on the street. On any day I can find all of the Movies on the theaters without subtitles or dubbing mind you, at a dollar a dvd. If Netflix can deliver at 10 bucks US a similar selection Piuracy will be defeated. If on the other hand what is available on Netflix Latin America is the same crap on HBO Ole which is crap Piracy will continue indefinitelly. People of any nation preffer to pay than pirate but the will not pay for Old movies and tv shows that are available in the crummy cable channels.

  6. I am a brazilian, and have subscribed to Netflix. Some points I think are relevant to the discussion at hand:
    – Pirates don’t have much to worry about – even though things are improving, not that many people have Internet access and even a lower percentage of those I bet will be able to hook up their computer to a TV. For them purchasing a pirated DVD for $2 is really practical since it is everywhere and pretty much condoned by the authorities.
    – Selection so far is REALLY limited. For instance I just checked and there are only 11 documentaries available. TopGear UK stops at season 6 (2006), and is dubbed in Spanish. The most recent movie I saw is from 2008, but most are from the start of the decade. The entire catalog feels so old that I can almost smell the mold on the walls.
    – Video quality overall is ok, but several movies just have a dubbed option (sometimes only in Spanish) and don’t have subtitles (subtitles are pretty big here for american movies)
    – There are very few brazilian movies, and those are quite popular here
    – The price point is really great based on their target demographics – usually just to rent a movie here in Brazil costs around $3-$5 in Blockbuster-type shops (which I guess are all disappearing anyway due to piracy)
    That being said, it is great to finally have something like this arriving in Brazil, and for $10 I will keep on subscribing to it if only to watch some old movies that I love :)

  7. I live in Latin America. I´ts a mistake to think that the problem is pirate cd/dvd vendors. Down here, general public and pirate cd/dvd vendors obtain pirate media from torrents (non latin america hosted servers). You can take off all the pirate vendors on the streets but It would not help too much because internet file sharing is here to stay. Pirate media on discs is very cheap but downloaded priate media is free. Ilegal but free.

    • I doubt Netflix will have the product that one wants at least outside of the USA. The selection in Canada is bad so much so that I would be interested in seeing the churn rate of customers in Canada. I doubt that Latin America’s selection will be as varied as the US is.

    • mateus marconi

      Brazilian here:

      When it comes to Brazil, the biggest turn off is the licensing of content. The pricing actually is attractive, but the options we are left with will undoubtedly be limited. New movies and tv series will continue to be pirated unless we get rid of these time/geographical boundaries to content (an example: if an episode of Doctor Who is being aired on BBC UK and US now, we want to watch the episode too). Add to that the fact that not every movie or tv show comes to latin america, and Netflix starts to look like a lazy alternative to the poor dvd rent shop next door.