10 Jan 2017 20:54 IST

Can Netflix crack the Indian market?

As part of Netflix top management, explain how you would enhance its subscriber base

In January 2016, Netflix Inc’s co-founder and chief executive, Reed Hastings, announced that Netflix would be available across 130 countries in Asia, West Asia and Europe. This was part of Netflix’s expansion strategy to enter international markets and launch streaming services in more than 200 countries by 2017. While India was a key market for Netflix, it was very different from the company’s stronghold, the US, and posed several challenges for Netflix.

The online video content provider, which serves approximately 81 million members in 190 countries, including more than 46 million in the US, was founded in 1997 by Marc Randolph and Hastings, and is headquartered in Los Gatos, California. It is an internet streaming network that streams TV shows and movies on different internet connected screens, such as TVs, computers, tablets and mobile devices.

In 1999, Netflix started off by introducing a DVD subscription service, providing unlimited rentals on a monthly subscription basis. By the end of 2007, Netflix was shipping around 1.6 million DVDs every day. That year, the company also launched its video streaming services in the US and, in 2010, began the global expansion of its business. Netflix posted revenue of $6.78 billion for the year ended 2015.

TV viewing transformed

Netflix had grown significantly in the US and also extended its presence in Europe and some other countries. In the US, the trend for date nights was changing from the typical movie and dinner to ‘Netflix and chill’. The rise of Netflix streaming had brought about dramatic changes in TV-viewing habits, especially those of Americans.

According to a survey, more than 60 per cent of Americans admitted to binge-watching shows on Netflix. Netflix’s political drama House of Cards has been a popular topic for discussion on social media. Netflix topped the share of downstream internet traffic in North America with a market share of around 35 per cent (March 2016). It had added 17 million subscribers globally between 2012 and 2015.

In India, the majority of the population was not familiar with online video streaming. Indian viewers got video content through their cable operators and DTH (Direct to Home) service providers. However, the scenario was changing with availability of increased internet bandwidth. With 462 million internet users as of July 2016, India was the largest new market for Netflix ( see Table 1). Most Indian users access the net via smartphones, which helps significantly cut down on the buffering time. In 2014, Indian internet users consumed 41 billion minutes of videos every month. Overall, 46 per cent of all internet usage in India came from watching videos.

 

Faster Internet

With its mobile subscriber base crossing one billion in October 2015, India became the second country after China to reach that milestone. The younger generation has been growing more accustomed to watching movies and TV shows on smartphones. By the end of 2016, it was estimated that 60 per cent of internet users in India were accessing the Web on mobile phones.

However, the bandwidth speed offered by internet service providers proved an obstacle for Netflix. In HD quality, Netflix would consume around 3GB of data per hour and a minimum of 8 mbps would be required to stream HD quality videos without buffering. Average broadband speeds were 2 mbps and most Indian internet service providers provided unlimited data.

The so-called ‘unlimited’ wireless data plans were offered with post Fair Usage Policy speeds of less than 100 kbps, which would not be enough to load even thumbnails of a movie. A 2 mbps connection in India was priced between ₹1,500- 2,000 a month. The price came down if the user wanted to restrict the data limit. Often, even after paying that amount, the user was not able to get consistent speeds, which could vary from 5 mbps to 50 kbps.

A question of content

Analysts felt it would not be a cakewalk for Netflix to succeed in India with its content. Netflix India has limited streaming content available and its collection of Indian films and TV shows is almost insignificant, though it is largely local content that can attract most of the country’s non-metro viewers. Additionally, it offers only around 7 per cent of its US collection. With competitors such as YouTube, Eros Now, Sony LIV, HotStar and HOOQ streaming local content, Netflix has a task on its hands to get the rights for more such content.

Apart from this, the most pirated TV shows of 2015, Game of Thrones (GoT), The Walking Dead and The Big Bang Theory, popular among the Indian audience, are not available on Netflix India. Analysts, however, say Netflix can penetrate Indian markets with its Hollywood hits, which it streams ad-free. The company announced in June 2016 that it was going to produce a new Netflix original series based on the novel Sacred Games written by Vikram Chandra.

Another major challenge for Netflix in India is fixing the subscription price. Unlike in the US, Indians prefer not to pay to view videos. Many Indian players offer some content free, whereas Netflix is a subscription-based offering. The pricing in India is more or less the same as in the US, where the subscription costs $9.99 (₹660) a month. For India, Netflix has three different plans. The basic plan is ₹500 per month for Standard Definition (SD) resolution, the standard plan is ₹650 per month for HD streaming, and there is a premium plan of ₹800 per month for Ultra HD (4K) screening ( Table 2).

 

Analysts say Netflix could be a costly option for many viewers, especially in the rural areas, compared to its competitors’ rates. Apart from this, Netflix requires credit card details for the one-month, free-trial period. However, credit card frauds being common in India, people are suspicious and wary of giving out information online. It is felt that this might discourage many from trying the service. Despite this, many among the urban and educated audience have subscribed to Netflix in India, mainly due to the popularity of its original series productions such as Narcos and Jessica Jones.

Competition, censorship

The free Torrent downloads pose a threat to Netflix in India. Some of the torrent sites are adopting a new technology similar to that of Netflix. File-sharing sites such as The Pirate Bay offer free access to a large number of movies and TV shows that can be downloaded illegally. Some sites also stream videos directly to a web browser. With low internet speeds, people might prefer downloading to streaming. Many Indian viewers would wonder why they have to pay for both data and streaming, when they could pay for data alone and download files without a limit. However, due to the restraints enforced by the Indian government, many torrent and video streaming websites remain banned.

Censorship could also be a setback for Netflix in India. House of Cards and other programmes available on Netflix could face problems due to the use of strong words and racy scenes. In India, even the James Bond film Spectre was subjected to cuts for its prolonged kissing scene. Another problem for Netflix is that the majority of its content is in English, though it does offer subtitles for most of its content.

Despite these challenges, Netflix plans to enhance its subscriber base in India by producing more local content. However, the Netflix India team has its work cut out for it as its launch has spurred Indian cable networks, video on demand (VoD) and DTH players into thinking bigger, with some of them planning to go beyond regular television programmes.

The challenge

You are part of the top management team of Netflix. In the context of what has been outlined above, what strategy will you adopt to overcome the various challenges posed by the Indian market? What will be your strategy on the product and pricing front? Will you opt for a standardised or adapted strategy for India?

Vinod Babu is a Research Associate and Purkayastha is Associate Dean at ICFAI Business School.

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