Can Netflix Capitalise On India Boom To Upset JioCinema Plans?

Netflix entered the burgeoning entertainment market of India in 2016, about the same time when the OTT boom began in the country on the back of increasing affordability of smartphones and dirt cheap internet plans. Netflix was a world renowned brand by then, and this gave rise to the expectations that it would take the Indian media and entertainment segment by storm. Obviously, Netflix also believed so.

Early in its journey in the country, in 2018, Netflix cofounder Reed Hastings predicted that the company’s next 100 Mn subscribers would come from India. The company hired seasoned executives from top broadcasters and struck numerous deals with big production houses.

With faith in the market’s potential, Netflix announced in 2019 that it would invest INR 3,000 Cr over the next two years to create content in Indian languages. However, Indian consumers turned out to be a tough nut to crack. During the company’s Q1 2021 earnings call, Hastings admitted that Netflix was still figuring out the Indian market.

Later, co-CEO Ted Sarandos said India saw a 30% increase in engagement and a 25% rise in revenue in 2022. However, it struggled with overall growth, despite a major reduction in subscription prices in India for certain tiers, amid rising competition from Amazon’s Prime Video and Disney+ Hotstar.

However, the situation seems to have changed for the entertainment giant in India now. The country emerged as the second biggest market for Netflix in terms of paid subscriber additions in the quarter ended June 2024, bolstered by a robust content catalogue tailored for the country’s audience.

Furthermore, India ranked third in terms of percentage growth in revenue during the second quarter of 2024, Netflix said in its letter to shareholders. However, it did not disclose the specific numbers.

“Netflix is excelling in capturing India’s affluent market, with over 13 Mn subscribers who consistently pay more than three times the average industry ARPU every month. Its success in acquiring new subscribers is fuelled by a combination of local original shows, digital premieres of blockbuster movies, and expanded telco partnerships, which have driven new additions. However, it’s the platform’s international content that enhances user retention,” said Mihir Shah, vice president of Media Partner Asia (MPA).

According to analysts, a shift in content strategy, improvements in distribution, and the crackdown on password sharing have played significant roles in the OTT giant’s success. Moreover, there was a decline in the competitive intensity in the Indian OTT space as major media companies like Zee and Disney Star faced internal struggles, a former executive of a top OTT platform said.

Navigating Indian Audience’s Content Demand

“When we look at Netflix historically, content has always played a critical role. It was not built around huge stars and big directors. Before Netflix came to India, most of the large, popular shows were not directed by Hollywood’s top directors nor did they feature the biggest actors. Unfortunately, for India, this was not followed. Initially, there was a heavy dependency on celebrities and some of the largest studios,” founder of a regional OTT platform said.

This reliance did not bode well for the streaming service. Netflix was trying to replicate movie content in the OTT space, despite the fact that the movie audience differs vastly from the OTT audience. But now, the dependency on Bollywood and large studios is decreasing, which is a good sign, the founder added.

As its understanding of the Indian market increased, Netflix started consistently focussing on regional content over the past 2-3 years.

 

According to Uday Sodhi, former head of SonyLiv, Neflix took time but has gradually built a successful business in India. Over time, it has developed a substantial business, showcasing an extensive content library with increasing depth. The platform has successfully produced high-quality content, with its library of local languages growing steadily.

Traditionally, Netflix has always focused on localising its global content. The company’s early focus on localising global content primarily appealed to a niche elite audience. The real game changer, however, was the strategic licensing of theatrical movies, which significantly expanded its audience base, said Pooja Shrivastava, head of digital initiatives at market research firm Chrome DM. This shift has greatly enhanced the positive perception and perceived value of Netflix’s content library.

According to Shrivastava, many viewers in India, a country with a deep love for movies, prefer watching films at home with their loved ones on Netflix due to the platform’s exceptional viewing experience. This trend is evident in the success of films like Laapataa Ladies, which, despite flopping at the box office, found a significant audience on Netflix.

“The new strategy of balancing content investment between theatrical releases and high-budget shows like Heeramandi has proven highly effective. Furthermore, incorporating local comedy stars like Kapil Sharma has resonated with Indian audiences, enhancing the perceived value of Netflix’s content library,” Shrivastava said.

As per Netflix data, its original series Heeramandi garnered 15 Mn views and its original film Amar Singh Chamkila garnered 8.3 Mn views. Besides, licensed films such as Laapataa Ladies and Shaitaan also performed well.

It is also pertinent to note that Netflix’s India arm, Netflix Entertainment Services India LLP, saw its net profit surge 75% to INR 35 Cr in the financial year 2022-23 (FY23) from INR 20.13 Cr in FY22. Operating revenue grew 24% to INR 2,214 Cr in FY23 from INR 1,784 Cr in FY22.

Building Robust Distribution

Besides its content pipeline, Netflix has also revamped its distribution strategy and this seems to have paid rich dividends. Today, Netflix has partnerships with all major telecom players, broadband providers, and DTH players, which has helped increase its reach, Sodhi said.

To put things in perspective, in May this year, Netflix partnered telecom major Vodafone Idea (Vi). Under the partnership, Vi has started offering prepaid tariff plans bundled with Netflix subscription.

The telecom provider currently offers three prepaid plans – INR 998 for 70 days, INR 1,099 for 70 days, and INR 1,399 for 84 days. All these plans come with Netflix’s monthly ‘basic’ subscription of INR 199.

Last year, Netflix also partnered telecom major Jio to offer prepaid tariff plans bundled with its OTT subscription. This was the first such move from the company in India. Netflix’s previous partnerships with telecom operators only targeted postpaid customers. The new partnership with Jio opened up a huge swathe of prepaid wireless subscribers for Netflix. This partnership opened up a new acquisition channel for Netflix.

Netflix also has a partnership with Airtel India. Airtel subscribers of select postpaid and V-Fiber home broadband plans can enjoy free streaming of Netflix for three months. After the free subscription period of three months, they have to pay for the platform using their Airtel postpaid or home broadband bill.

Besides, Netflix has also partnered with local broadband providers like ACT Fibernet.

As more and more consumers in India adopt home broadband, move to connected TVs, and 4K streaming, these partnerships are helping Netflix India in terms of adoption. Moreover, cord cutting as a general phenomenon is becoming prominent in the country, the founder of the regional OTT platform mentioned above said.

As per TRAI data, the number of wired broadband users stood at 41.31 Mn at the end of May 2024, 20% higher than 34.47 Mn at the end of May 2023.

For the uninitiated, cord cutting refers to the trend where viewers move to OTT platforms entirely for consuming entertainment content, and disconnect traditional TV subscriptions such as DTH and cable.

What Other Factors Played A Role?

One of the other major moves that seems to have helped Netflix increase its subscriber base in India is putting an end to password sharing. Last year, Netflix extended the ban on password sharing to all countries, including India. It restricted users from sharing passwords with people outside their “Netflix Household”.

“A Netflix account is for use by one household. Everyone living in that household can use Netflix wherever they are — at home, on the go, on holiday — and take advantage of new features like Transfer Profile and Manage Access and Devices,” Netflix said.

This, coupled with the decrease in competition in the Indian OTT market has benefited Netflix, according to Sodhi. For example, one of its prime rivals, Amazon Prime Video, has been producing original series in limited capacity. Disney+ Hotstar reduced its content in India even before the merger with the Reliance Group’s media business.

Meanwhile, JioCinema has recently started investing in original content. Among the other homegrown broadcast-led OTTs, Zee5 has been struggling largely due to turmoil at its parent company, and SonyLiv has a limited pipeline of original content.

What’s The Way Ahead For Netflix In India?

As per MPA’s estimates, Netflix currently has 13 Mn subscribers in India. According to Karan Taurani, SVP at Elara Capital, the OTT platform’s subscriber base in India is significantly lower compared to other international markets. This lower base is a key factor in the high growth rates observed in India.

The Indian market accounts for not more than 6% of the total subscriber base, he added. “The growth numbers are for a small base, both in terms of revenue and subscriber count. This is why India is the second or third fastest-growing market for Netflix,” he said.

However, Taurani said that India offers a significant growth opportunity.

“We don’t see Netflix hiking prices because the market is still very fragmented and highly competitive, with a lot of content available for free. Netflix has been making some innovative moves, but we need to monitor how the content shapes up,” he said.

There is also the trend of increasing premiumisation in India. With rising incomes, the country is seeing a number of new consumers upgrading when it comes to the goods and services they use.

Commenting on this trend, Taurani said, “In terms of premiumisation, it is just the usual trend playing out in a market like India. The premium customer is not seeing any pressure in terms of spending or income levels. From that standpoint, it bodes well for Netflix. However, the premium market is substantially small. Netflix would need to go beyond the premium market, which is why they have also cut prices in two rounds. Currently, the pricing is affordable, with a plan at INR 149 for mobile. Hence, I foresee that this kind of growth rate will continue moving forward.”

[Edited by Vinaykumar Rai]