As Netflix inches closer to saturation point in its North American home market, it is desperately looking for growth abroad. India being the only billion plus market where it can operate with ease, it is no wonder that its push is aggressive here. However, as Netflix’s market share stagnates, does it risk meeting the same fate as Apple did in device segment in India?
Most young English speaking middle class Indians got acquainted with Netflix much before its launch in India thanks to the myriad American TV shows they were downloading on torrent sites where reference to the popular (now considered double meaning) weekend phrase “Netflix and chill” was common. This created a longing in them to see the platform launched in India if they weren’t lucky enough to experience it on VPNs using the credit card details of their relatives living in the US/Canada. In fact, parallels can be drawn between the wait for early Apple device launches in India, which used to be far behind their global launch, and Netflix’s introduction here.
This wait ended in January 2016, when as part of its push to launch in 130 countries, Netflix covered India in the same sway. Even though the Indian site and app were skeletal at best back then, there has been strategic implementation of content acquisition and production from India. What started from launch of Brahman Naman – an Indian sex comedy with a dismal IMDb rating of 5.7 and described as “perverted American pie” – has morphed into a content powerhouse with the success of Sacred Games and Lust Stories and has resulted in Netflix announcing a slew of original series and movies from India.
This phenomenon is reflected in Netflix’s top execs frequently jet-setting to India and making no secret of their ambitions here, which is best reflected in Chief Content Officer Ted Sarandos’ words at Mumbai Film Festival: “We have 10 original shows [for India] in production right now and six original films coming up for 2019, and more to come”. Though it is not known how much of the US$ 8 billion content budget announced by the company for 2019 will go to India, this level of investment and push has created a flutter in the offices of the incumbents, as production houses and directors chase the money bags opened by Netflix. In a market which has been characterized by formulaic, long-drawn soap opera production focusing more on per episode cost than quality – Netflix’s presence has permitted creators to expect their passionate projects to see light of day.
Netflix’s stock listed on NASDAQ jumped 9.3% on the day of its global launch. However, since then, the global reach has become a pressurizing market expectation as Wall Street analysts mince no words as they ask for subscription and revenue growth to service the mounting debt of approximately US$20 billion. The ratings agency Moody’s has already assigned Ba3 rating to Netflix – which simply means that the agency called the debt a non-investment grade speculative security. However, Moody’s qualified the rating by saying that the stable outlook “reflects our expectation that Netflix’s operating results will improve gradually and the company will de-lever through revenue, EBITDA and margin growth” – which is financial jargon to say that Netflix should continue to pay off the interest and the principal debt amount by growing its revenues and profits in the future.
To make this prediction a reality, it can’t be emphasized more that Netflix will have to win in emerging markets like India. But this is exactly where its business model seems to be hitting a roadblock, i.e. the difficulty of capturing users in markets with enormous number of households but with much lower disposable incomes and wide linguistic and cultural diversity.
Presently, Netflix’s market share in the video streaming market in India stands at a meagre 2%, behind even Amazon Prime Video which is in >4% range. Even though Netflix’s billboard ads dominate the landscape of any metro city in India, however, given the subscription plans ranging between INR 500 to 800 per month – costlier than Netflix plans in Japan and Canada – achieving success amongst price-sensitive Indian masses has proven to be tough going, given the ground reality of Indian video streaming industry shaped by following on ground factors:
- India’s unique content streaming ecosystem – Indian curated (i.e. non-user generated like YouTube etc.) video streaming ecosystem is dominated by the same players who have traditionally done well in the cable & satellite pay TV ecosystem, viz., Hotstar (owned by Star); Zee5 (Owned by Zee); Voot (Owned by Viacom18); & SonyLiv (Owned by Sony India). [it should be noted that Star, Viacom18 & Sony India are Indian entities of US based Fox (soon to be Disney), Viacom and Sony respectively – while Zee is owned by the Chandra family.] Therefore, unlike their US counterparts, Indian broadcast companies were quick to realize the threat posed by digital disruption and started offering their content on own apps. Thus, Netflix’s opportunity of coming in and shaking the ecosystem was diminished greatly as Indian broadcasters were busy sprucing up their forts. The Indian broadcasters coming from a long experience of knowing the consumption and spending patterns of Indian consumers offered their TV and movie content in ad-supported manner rather than forcing consumers to pay subscription over and above the cable TV & mobile data expenses they were already incurring. Again, they were working on a content streaming business model different from that of Netflix. Even when the Indian players did offer subscription, they did so at extremely cheap rate – as low as INR 99 per month or INR 499 per year for Zee5 – and they didn’t shut down the ad-supported part of their offerings. Moreover, other subscription-based content streamers like Amazon Prime Video offered their product at a very competitive price point of INR 999 per year and bundled it with their other offerings such as Prime delivery service and Amazon Music – thereby making it a value proposition for the Indian consumer. Moreover, it has successfully bundled its prime bouquet with telco carrier packs and other market offering and this tactic has been replicated by Indian players with considerable success.
- The way in which Indian M&E industry has traditionally served consumers – Netflix will have to accept the fact that there was a thriving media industry in India before it landed on the shores and the industry did not operate in a vacuum without understanding its consumers. The two primary sources of video entertainment for Indians – TV and films – have had to keep their prices low to lure consumers. In fact, the ARPU for Indian cable & satellite industry is arguably the lowest in the world at around USD 3 – 4 per month and at this price point the Indian consumer expects access to drama, news, sports, films and more. This has left its imprint on the business models of Indian digital streamers as they are offering not only standalone titles like Netflix, but live streams of TV channels from all genres, including news, and in multiple languages. Moreover, Hotstar and SonyLiv even offer a wide selection of cricket and non-cricket sports. This makes them well-rounded and an effective replacement for cable TV, which Netflix is far away from being.
- Coming to films, they have long served as one of the main weekend outings for Indian masses, and, over time have been able to build a more premium touch through mushrooming of multiplexes. The CEO Of Netflix, Reed Hastings, has been known to say that he’s targeting this section of population which spends INR 1000 – 1500 for a film outing as Netflix can offer much more content at a lower price/month while sitting at home. However, it must be noted that Indian household expenditure operates on an “or” basis rather than “and” basis – meaning that if they spend on Netflix, then the movie outing has to be canceled, something a lot of households may not be keen on.
- Economic indicators of Indian population – With a per-capita income of less than INR 1.4 lacs per year, India is, at best, a lower-middle income country with a very low average disposable income. Therefore, the population that can actually spend on subscription based streaming services is quite small and will remain so for some time to come. The good news is that India is expected to grow fast in the coming decade and average incomes should double, or going by some estimates, even triple. Therefore, a change in consumption patterns will happen, albeit only gradually.
- Censorship and other policy concerns – All forms of content have attracted some or the other kind of regulation in India. As online content gains popularity, there’s no reason to believe that the Government would continue to maintain a hands-free approach. Apart from content regulation, there are concerns emerging from regulation of OTT/apps and other such challenges. However, as reported in the media, Netflix is already partnering Indian players on creating self-regulation guidelines while Amazon Prime Video continues to oppose the same.
Based on the above factors, one can say that India has never been the market which adjusts itself for others. Rather the entrants must make themselves relevant to the Indian populace. Given the low disposable income and multiple competitors offering linguistically diverse content at free-to-low prices, it is up to Netflix change itself to gain critical mass. It can’t simply harp on offering “better content”, as others will copy such a strategy, with lower prices. This has already happened in the case of smartphones, where Chinese manufacturers such as Xiaomi and BKK (owns OnePlus, Vivo and Oppo) have ensured that the Apple can never rise above the 1-2% market share in India without changing its fundamental business strategy.
Netflix has shown desire to adapt to Indian scenario by acquiring and commissioning content in regional languages, pondering over a lower-priced, mobile-only plan, allowing a download feature and bundling subscriptions with telco carriers’ packs. Hence, the industry can expect Netflix to innovate its business model in India and grow.
The author is a veteran of the Indian media & entertainment industry.