Netflix (NASDAQ:NFLX) has struggled to make significant headway in India, one of the most promising markets for any internet company. With just a few million subscribers in the country of more than 1.3 billion people, Netflix introduced a new mobile-only plan last year, costing just 199 rupees a month (about $2.80 at launch, but just $2.60 at today's exchange rates).

Management says it's seen good results with that mobile-only plan and adapted the offer for other south Asian countries. The low-priced option may have been especially popular in the first quarter, as Netflix saw its average revenue per user fall 3% on a foreign-exchange-neutral basis in the Asia-Pacific region.

But it turns out Netflix may have room to raise prices in India. It seems 90% of Indians would pay more for their subscription, according to a new survey from Jefferies analyst Brent Thill. Netflix is unlikely to raise prices anytime soon, especially given the economic and competitive environment amid the COVID-19 pandemic and the recent expansion of Hotstar from Disney (NYSE:DIS). Still, the response is another indication of the revenue growth potential for Netflix in international markets, where penetration and ARPU remain relatively low compared to the United States.

A person in bed watching a video on a tablet.

Image source: Netflix.

Big investments in India

Back in December, Netflix CEO Reed Hastings said he plans to spend over $400 million on licensed and original content specifically targeted at the Indian market. That's a massive investment compared to competitors like Disney and Amazon (NASDAQ:AMZN). It represents an increase 2.5 times its previous content budget for the Indian market, according to estimates from KPMG.

Netflix is already seeing a strong increase in viewer hours in India amid the coronavirus pandemic. People are generally streaming more while they stay at home, but they're opting for Netflix more than its competitors. Streaming hours more than tripled for Netflix in India between March 25 and April 24, according to data from JustWatch. By comparison, Amazon and Hotstar increased 189% and 149%, respectively.

Thill's survey found the percentage of Netflix subscribers watching more than 10 hours per week jumped to 59% from just 23% pre-COVID. That's a significantly bigger jump than either the U.K. or U.S., although India has had stricter stay-at-home orders than other countries.

The step up in content investments may not even have shown its full effect in India. Hastings only announced plans in December, so any increased original content budget has yet to show up on the service. Meanwhile, licensing deals can take months to work out. So Indian subscribers will likely have even more reasons to choose Netflix over the competition next year and beyond.

Following the playbook

Netflix has managed several successful price increases in its more mature markets over the last six years. Management explained its strategy for price increases last January, after introducing its most recent price hike in the U.S.

"Our job is to effectively invest the money that our subscribers give us every month, so that we can give them incredible content and a better and better product experience," product officer Greg Peters said on Netflix's 2018 fourth-quarter earnings call. "If we do that well, we create more value for our subscribers and then occasionally, we'll come to them and will ask for a little bit more money, so that we can actually start that next cycle of investment."

So, a price increase in India may be a couple of years out, after Netflix shows subscribers what its increased content spending will bring them. Netflix wants to ensure that, when it does ask a higher price, it doesn't cause increased cancellations or potential subscribers to balk when they see the price. That's what happened in the U.S. after last year's price increase. Netflix saw a net subscriber decline in the second quarter last year due mostly to lower gross additions. The unexpected loss sent the FAANG stock's price lower.

Meanwhile, low-priced competition from Disney and Amazon could put pressure on gross additions as well if Netflix raises prices too early. Instead, it's better off winning as many subscribers at a low price now, proving its value, and raising prices in the future.