#16 M&E Research : Netflix needs to shine brighter in India

Posted In New Media, OTT, Research - By Nitin Narang on Monday, March 26th, 2018 With No Comments »

I was a Netflix subscriber in the US, not anymore. Back home in India, I tried a month’s free subscription for Netflix and HotStar, and only the latter stayed. What changed? The content is almost the same, and so is the quality, but the key was overall “Value Proposition.” A term often misunderstood in isolation is more a comparative measure based on prevailing environment, competition, and what is found reasonable. Here, Netflix’s value proposition failed to inspire in comparison to other options.

Netflix is the world’s largest streaming giant, with over 117.5 million subscribers in 190+ countries, consuming over 140 million hours of TV shows and movies every day. It is the strongest gainer among FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google), with its shares already gaining 50% this year, on top of 50% gains in 2017. Its market capitalization recently crossed $130 billion, placing it comfortably in the league of media giants like Comcast and Time Warner. But Netflix’s journey in India remains a restricted and premium-only service. It is sad given India is one of the largest data and fastest growing online media markets.

Netflix 2016 Vs. 2018

Netflix launched with great fanfare in India, but its presence has largely remained unnoticed. While it has been testing waters and growing steadily, the time has come to embrace and expand with energy. Netflix recently announced seven local series, including sacred games, featuring Bollywood star Saif Ali Khan with a complete Indian production team. There are three other original Indian series, Leila, Ghoul, and Crocodile, in the pipeline. While an uptick in India-specific content and local production is great news, it still lags by a far distance compared to Netflix’s other large international markets.

Connectivity and Online Video

The launch of the Reliance Jio service in 2016 has completely overhauled India’s Online landscape. It has catapulted India to a numero uno position in terms of mobile data usage with the world’s largest and cheapest data network. India in 2018 has transformed from relatively low broadband, limited Internet mobility, low data consumption, and device penetration to the fastest growing across all four parameters. India’s Internet connectivity landscape (4G) now records the highest consumption and lowest rates, placing it well ahead of the world’s most developed nations.

Mobile internet is significantly important, given India is a mobile-first country with smartphones becoming primary content consumption devices for most users. India has over 300 million smartphone users and 400 million feature phone users who are fast transitioning to internet-connected devices. The number of internet users with video-capable devices is expected to reach 500 million in 2018 and is projected to cross 800 million by 2021. India offers a huge online video market, growing at 35% YoY, with users spending an average of 12.3 hours per week watching online content (reported by Akamai). A market not to be ignored.

What can Netflix do differently?

Netflix has been immensely successful across the world, growing and gaining customers every quarter. It has great content, unmatched quality, superior delivery technology, and superb presentation, but the package has gaps in the Indian market. Netflix has kept its strategy intact by targeting premium category consumers. Still, it is not about the UHD and 4K content for India, and neither is it about the latest Hollywood movie. But it is about overall customer satisfaction – content, which customers can relate to, and low subscription fees. Netflix needs some serious reworking in both content and pricing to succeed in India. It is this value proposition, which matters and will make the difference. While Netflix has not publically published Indian subscribers, it is largely expected to be fewer than a million. Below are some areas which could bring a change

Partnership for a subscription – Netflix needs deeper penetration among the masses, something it cannot achieve alone. A custom long-term contract in partnership with the dominant device/telecom player can exponentially expand its subscription penetration. The service needs to scale even with lower margins. E.g., a yearly subscription at nominal rates with Reliance Jio / Bharti Airtel can give access to millions of potential new subscribers.
Pricing Tiers – Netflix’s current pricing is an issue and is well recognized. While it retains its global pricing policy, differentiated plans can be created to encourage subscription. An under $2-$3 plan with limited SD content offers a low enough barrier for customers to engage and experiment with Netflix. Given Netflix already manages subscription tiers based on resolution and connections, the content catalogs access policy is a doable extension.
Partnership for Content – India is a large country with many languages and regional preferences. There is a need for local content with a familiar cast that the audience can recognize and relate to. The ratio of Hollywood to Indian content has to shift towards later. Although Netflix has a vast library, which charms Indian viewers, it still lags local content. While a beginning is made, it has a lot of ground to cover, from local and regional content to partnerships with Indian media houses and studios. Getting rights to sports, especially Cricket IPL, World Cup, can give it instant coverage and reach.
Freemium models – While ad-supported freemium models have remained outside of Netflix’s ways of business, the model has great significance for Indian subscribers who have savored YouTube videos for ages. With an exorbitant amount of content available for free*, any paid subscription has to offer significant benefits to get even a small market share. While there will be a premium set of users who will pay and subscribe, service reach remains restricted.
Make the Price right – Among all factors, pricing is still the key since product excellence is important, but the value proposition is paramount.

Competition

India has a full house for Online media players with Hotstar, Voot, Sony Liv, YouTube, Amazon Prime among the largest. HotStar, in particular, has been doing well with growing content offerings and a decent pricing structure. Its’ partnership with Star and Viacom and smart marketing brings various local and global content (like HBO, Showtime, ABC) and hugely popular live cricket matches, coverage of IPL (Indian Premier League), and new Bollywood movies. Hotstar comes at one-third of the cheapest Netflix subscription cost and commands over 70 million subscribers, with roughly 3-5% paid subscribers.

Conclusion

Netflix’s focus on paid-only, premium subscriptions is a restrictive move and keeps the mass market out of bound. Given India’s phenomenal rise in Internet penetration, growing devices, rich demographics, and low data rates, all factors, which were once adverse for global players to invest in India, have turned in India’s favor. Netflix’s entry into India seems more like to have a presence rather than to make its presence felt. It needs an India-focused strategy, needs to take bold decisions, and invests for a longer-term play. India has the answer to provide growth Netflix wants to grow at. It is a country that can add 100 million subscribers to its kitty. Netflix needs to shine brighter and bolder in India.