Introducing the Netflix Index

Most economists are familiar with the Big Mac Index: the Economist’s spin on the relative pricing of each global currency. They call it a ‘light-hearted’ take on currency markets but the rationale behind it is so concrete and presumably, so many millions are traded on currency markets at the very least a tip of the cap to it, that it’s more serious than ‘light-hearted.’

The age of globalization means that McDonalds and the Big Mac aren’t the only ones with all-but standardized products being sold across the globe. One such index, for example, has been devised for Coca Cola (NYSE:KO). The problem with this, of course, is that the price of Coca Cola can be twenty different prices in the same neighbourhood (ever bought Coke at the cinema?), while McDonalds will be the same across the board in a country.

Enter the Netflix index. Quartz recently published a list of the prices charged for Netflix (NASDAQ:NFLX) in a number of countries last week and like McDonalds (NYSE:MCD), it’s offering one price between a country’s borders for the standard Netflix offering. True, there is some variation in the content of each country’s version of Netflix but they’ll all have staples such as Breaking Bad, House of Cards, Orange is the New Black and if they’re very lucky, Joey. Therefore, it allows us to make a Netflix index in the same way that the Economist makes a Big Mac Index.

Country	Price of Netflix (US$)	Implied Exchange Rate	Actual Exchange Rate	% Over /Undervalued
Argentina	4.75	0.58	0.110	429.2%
Canada	7.78	0.95	0.760	25.5%
Brazil	7.98	0.98	0.280	249.3%
USA	8.16	1.00	1.000	0.0%
Switzerland	9.8	1.20	1.040	15.5%
UK	10.89	1.33	0.650	105.3%
Finland	11.38	1.39	0.890	56.7%
Netherlands	11.38	1.39	0.890	56.7%
Belgium	11.88	1.46	0.890	63.6%
Luxembourg	11.88	1.46	0.890	63.6%
Germany	11.88	1.46	0.890	63.6%
France	11.88	1.46	0.890	63.6%
Austria	11.88	1.46	0.890	63.6%

If the Netflix Index is to be believed, most currencies are over-valued. That said, looking at some of the prices, it does seem like Netflix doesn’t have a concrete strategy in its pricing (which is discussed in the same article). There may be some pricing algorithm that they’re not telling us about yet. Alas, the time of the Netflix Index may be some time off maturity.