A lot has been written and said about Netflix India strategy; I would like to give my view on the same highlighting changes needed for Netflix to scale up their subscriber base in line with peers like Amazon Prime and Disney + Hotstar in India.
Key changes in strategy that may augur well for Netflix over the medium to long term in India’s OTT market
1) Affordable pricing is key for scale
India remains to be a very price-sensitive market with extremely low ARPUs on TV (Rs 300-350 per month); there is a high willingness to pay on TV medium for entertainment by the Indian consumer due to the vast variety of content (over 900 TV channels). TV is the only entertainment medium that drives close to 60% of its revenue from the subscription/pay based segment as compared to other forms of media (print, radio, digital) that are heavily dependent on advertisement. Netflix has recently cut prices for its basic plan which gets it closer towards peers like Disney+ Hotstar (Netflix basic mobile-only plan is INR 1,800 per year whereas Hotstar/Amazon Prime is at Rs 1,500); we expect a sharp jump in the subscriber base given this price cut over the medium term
2) Bundling and value-added offerings is another important factor
Almost 90% of India’s pay based revenue on digital (SVOD) is through bundling with various telecom service providers, OEM’s and other partners. When Netflix entered India in 2016, they did not have any partnerships and this would limit the growth of the subscriber base; however, over the last few years they have tied up with various partners in the telecom ecosystem, which helps the customer subscribe to Netflix in a bundled plan, which works out cost-effective. Further, we believe e-commerce offering (free delivery) and sports content are key value-added offerings for Amazon Prime and Disney + respectively, which have been able to scale up the subscriber base. We believe Netflix could either adopt the route of providing some value-added service/bundle (games) or provide discount/flash sales in order to persuade the customer to try their offering.
3) Transition from AVOD (advertising video on demand) to SVOD (subscription video on demand) will drive Netflix subs base
As mentioned above, India’s digital revenue is heavily skewed towards AVOD, as a large portion of consumers are still not willing to pay online for content; this is primarily due to three reasons 1) most markets still not penetrated in digital consumption 2) trust issues for using online payment mechanism and 3) piracy of content. We believe most of these factors will change over a period, as SVOD revenue is slated to grow at a faster pace vs AVOD revenue over the medium term, which will benefit players like Netflix that are a pure-play SVOD offering.
4) Localisation of content will help penetrate better
Netflix has always been known for global content and had a handful of subscribers when they initially launched in India; they adopted an aggressive content strategy and provided a lot of Hindi original web series and film content to target the urban customer base. However, in the case of a target market, India remains to be a big opportunity and one cannot ignore the potential of regional content here; apart from Hindi and English, there are 10-12 major regional languages in which the Indian audience consumes content. Within the regional space, south remains to be a very important market, which is quite visible from trends like 1) time spent on TV for south is almost 25% higher than pan India averages 2) South produces more than half of all the cinematic films in India annually. We thereby believe it will be important for Netflix to localise content and target the regional market if they were to scale up here; we expect a lot of big-ticket investments in originals and feature films to drive this growth.
Some strengths that Netflix possess in this highly fragmented Indian OTT market
1) Unmatched user experience and technology offering
Netflix remains to be one of the few OTT platforms in India which has the best user experience in terms of platform usage. We believe apart from content; this is also one very important factor that works for subscriber retention. OTT as a media consumption has always had this problem of content exploration, Netflix makes it easier for its consumers to choose the right content based on their needs and preferences; offering a personalized experience.
2) Huge variety of dubbed content enables effective asset sweating
Netflix has one of the largest varieties of global content; even after Disney decided to remove a large chunk of its content in 2018, Netflix has grown leaps and bounds and created multiple successful franchise web series in-house. We believe Netflix already possesses a big library of content that can be dubbed in multiple languages across countries; India has so far shown a very positive response to the Korean and Spanish dubbed content; we expect this to emerge as a big opportunity as Indians willing to explore global content will increase over the medium term due to increased consumption of OTT content
3) Market leader in the Indian SVOD segment
Netflix India revenue has grown 65% YoY in FY21 and it has a market share of almost 35% in India’s SVOD market; we believe Netflix has the first-mover advantage in India, as it was one of the first pay based OTT offerings in the country; it has been able to create a strong brand recall within Indian audience for premium content offerings behind a paywall and this will help it gain more market share as it penetrates deeper in India.
4) Capability to invest in large scale content
India’s OTT market seems to be highly fragmented with over 60 OTT apps; most of them don’t possess the capability to invest in large scale content. We believe the audience on OTT is very demanding and looks forward to watching premium and large-scale content; content costs, in general, are expected to continue to move up significantly in India due to the wide number of platforms. We thereby believe that despite the sharp surge in costs, Netflix has a better capability to invest in this high budget content space as compared to smaller OTT platforms that may have limited resources.
We believe India’s OTT market provides a big opportunity for all players to grow; however, ones that have the correct content strategy coupled with a good user experience and effective distribution mechanism will stand out as a winner. We believe Netflix too will move and expand in the right direction in this Indian market.
Article is authored by Karan Taurani, SVP – Elara Capital.