SUMMARY
Netflix is looking to India for its next phase of growth because of India’s internet revolution, as well as competitive pressures and slowing growth in the US market.
Although Netflix has been able to build a high-paying, deeply-engaged user base, it has struggled to capture significant market share in India.
Netflix has adopted an India-first mentality – as evidenced by its cheaper mobile-only plan – but needs to go the extra mile, especially in terms of content, to make a dent in the Indian market.
India is in the midst of a colossal internet revolution, bringing hundreds of millions of Indians online for the very first time. This revolution, driven in part due to the proliferation of low-cost wireless internet data and cheap smartphones, is enabling the country to unlock tremendous value. India is undergoing a drastic shift towards a technology-driven society and a digitally-enabled economy – which has caught the attention of the world.
Global technology giants have recognized the potential of this revolution as an opportunity to capture growth – especially given India’s enormous population, democratic society and a free-market economy – and have thereby doubled-down on their India-strategy.
Netflix, the DVD-rental company turned technology behemoth, is one such company that has recognized India’s potential. CEO Reed Hastings believes that Netflix’s next 100 Mn subscribers will come from India. To put this number in perspective: Netflix has a total of just over 151 Mn subscribers. Although Hastings’ ambitions may be lofty, they are rooted in reality given India’s explosive growth in internet users, as well as internet consumption.
India: Tech’s Next Frontier
The total number of Indians that have access to the internet makes India extremely attractive to Netflix. The 456 Mn Indian internet users account for 12% of the global internet user base and outnumber the total number of internet users in the US, UK and France combined. Some estimates even peg the total number of internet users in India in 2018 between 560-580 Mn.
Even if one considers the more conservative estimates, India’s internet users have grown 10x since 2007, the year Netflix launched its streaming service in the US. This rapid growth is expected to continue: by 2025, the number of internet users in India will grow to 850 Mn, greater than the population of the G7 countries combined.
Data consumption in India has skyrocketed as well. The total amount of data consumed increased by a staggering 56x between 2014-2018 and is expected to further increase by 200% by 2020. The increase in data consumed by Indians is being spread across users, as data consumption per user per month has increased from 0.3GB to 7.7GB (2014-2018) – significantly greater than developed countries like the UK (2GB), US (4GB) and South Korea (6GB).
Moreover, the time spent watching video content on the internet has increased from 2 minutes to 52 minutes per day per user (2012-2018), and is expected to exceed 100 minutes by 2021. This increase in consumption is a direct result of the 95% decline in wireless data prices from almost INR 270 in 2014 to under INR 12 in 2018.
Trouble At Home: Slow Growth & The Streaming Wars
Aside from India’s the rapid growth in internet users and data consumption, Netflix has increased its focus on India – and high-growth international markets more broadly – due to troubles in its home market, the United States.
Netflix has been experiencing a slowdown in growth in subscribers in the US that culminated in a subscriber loss of 130,000 users in the American market, a first for the company since 2011, in the Apr-Jun 2019 quarter. Although Netflix added US subscribers in its most recent quarter, it missed its expectations by 55%. In fact, according to PwC, the streaming giant “appears to be nearing its peak subscriber point in the US.”
In contrast, Netflix’s international subscriber growth has been strong and is expected to continue. Hence, since Netflix relies on continuous subscriber growth to spread its content costs – which do not vary with increasing subscribers – it must look to international markets.
The slowdown in the US is especially worrisome for the company because of the looming threat of competition – which the industry has dubbed as the ‘streaming wars.’ The US video streaming market will become more crowded with the entry of deep-pocketed players such as Disney, Apple, Warner Media and NBC Universal in the coming months.
To make matters worse for Netflix, many of the new entrants are offering their services at lower prices. Further, the new entrants are taking away movies and TV shows that had earlier been licensed to Netflix, including blockbuster franchises like Star Wars and Marvel, as well as iconic TV shows like The Office and Friends.
In fact, 40% of all viewing minutes on Netflix come from movies and TV shows created by the new players entering the video streaming market. Hence, Netflix is looking to its international markets to achieve the next phase of growth – and has identified India as a major market that will enable it to actualize this growth.
The Netflix India Journey So Far
Netflix entered India in January 2016 to a hyper-competitive video OTT market, which has international players like Amazon, telecom players like Airtel and Reliance Jio and content players like Star, Sony and Zee vying for market share. Although faced with tough competition, the company has built a heavily engaged user base that uses Netflix more frequently and for longer periods, as compared to users of other streaming platforms – as evidenced by higher viewing sessions per user and viewing session duration.
Further, Netflix has been able to monetize its user base significantly more than its competitors. App Annie, an analytics platform, estimates that Netflix’s revenue in India was 230% that of Hotstar, its closest rival in terms of revenue, between June 2018-19.
Although Netflix has a deeply engaged and high-paying user base, it has been unable to achieve its objective in India, i.e. subscriber growth, and thereby commands a tiny share of the Indian OTT market. App Annie estimates that between August 2018-19, the total number of downloads for Netflix was 17.5 Mn, significantly lower than the 119.5 Mn of Hotstar in the same period. In terms of market share, liberal estimates would put Netflix’s share at 5% of the Indian market – compared to Hotstar’s 24% share.
Evaluating The Netflix India-First Strategy
Although Netflix recognised the need for local content and priced itself significantly lower compared to its other markets, it has not been able to capture significant market share in India – prompting the streaming giant to adopt an India-first strategy.
Chief Product Officer Gregory Peters re-affirmed Netflix’s changing strategy towards India and stated that the company “needs to have a lower price offering to improve accessibility.” The high price point of INR 499-799 – compared to other OTT platforms in India – acts as a significant barrier for the majority of Indians to subscribe to Netflix.
In line with this, Netflix launched a mobile-only plan, which is not only comparable to its competitors’ price points but also leverages India’s mobile-first ecosystem — 77% of digital content consumption is estimated to take place via mobile. Netflix has also partnered with telecom providers to bundle its streaming service to improve distribution and remove the friction of online payments, another significant barrier for OTT adoption. Additionally, to entice Indians onto its platform, Netflix is experimenting with offering some free content to users – starting with the first episode of the newly released Bard of Blood.
However, the company — which prides itself being a content-first company — needs to view local content in a more nuanced manner. Even though Netflix produces high-quality local original content, most of the content appeals to users from cities, i.e. those from affluent, urban and educated backgrounds. Some of Netflix’s ‘local’ content is more foreign to the majority of Indians than ‘foreign’ content is to Netflix’s India user base in Tier 1 cities.
Compared to its peers, Netflix still lacks the regional content that caters to users from Tier 2 and Tier 3 cities, as well as rural India – segments that will drive the next phase of growth in the OTT market, and the internet as a whole. Google estimates that around 90% of content consumed by Indians is in local languages. Although Netflix has announced some regional language content, the company still lags behind its Indian counterparts and must look to applying an India-first lens to content production as well.
Only time will tell if Netflix’s India-first strategy is enough to compete with the likes of Hotstar, which has 300 Mn monthly active users in India – twice of Netflix’s global subscriber base. However, Netflix’s experiments with pricing, partnerships and content indicate that it is serious about capturing the Indian market and is looking to India for its next phase of growth.
