Netflix has invested into Indian content, but market share continues to lag\n\n\n\nAs\nNetflix inches closer to saturation point in its North American home\nmarket, it is desperately looking for growth abroad. India being the\nonly billion plus market where it can operate with ease, it is no\nwonder that its push is aggressive here. However, as Netflix\u2019s\nmarket share stagnates, does it risk meeting the same fate as Apple\ndid in device segment in India?\n\n\n\nMost young English speaking middle class Indians got acquainted with Netflix much before its launch in India thanks to the myriad American TV shows they were downloading on torrent sites where reference to the popular (now considered double meaning) weekend phrase \u201cNetflix and chill\u201d was common. This created a longing in them to see the platform launched in India if they weren\u2019t lucky enough to experience it on VPNs using the credit card details of their relatives living in the US\/Canada. In fact, parallels can be drawn between the wait for early Apple device launches in India, which used to be far behind their global launch, and Netflix\u2019s introduction here.\n\n\n\nThis\nwait ended in January 2016, when as part of its push to launch in 130\ncountries, Netflix covered India in the same sway. Even though the\nIndian site and app were skeletal at best back then, there has been\nstrategic implementation of content acquisition and production from\nIndia. What started from launch of Brahman\nNaman \u2013 an Indian sex comedy with a\ndismal IMDb rating of 5.7 and described as \u201cperverted\nAmerican pie\u201d \u2013 has morphed into a\ncontent powerhouse with the success of Sacred\nGames and Lust\nStories and has resulted in Netflix\nannouncing a slew of original series and movies from India.\n\n\n\nThis\nphenomenon is reflected in Netflix\u2019s top execs frequently\njet-setting to India\nand making no secret of their ambitions here,\nwhich is best reflected in Chief Content Officer Ted Sarandos\u2019\nwords at Mumbai Film Festival: \u201cWe\nhave 10 original shows [for India]\nin production right now and six original films coming up for 2019,\nand more to come\u201d. Though it is not\nknown how much of the US$ 8 billion content budget announced by the\ncompany for 2019 will go to India, this level of investment and push\nhas created a flutter\nin the offices of\nthe incumbents,\nas production houses and directors chase the money bags opened\nby Netflix. In a market which has been characterized by formulaic,\nlong-drawn soap opera production focusing more on per episode cost\nthan quality \u2013\nNetflix\u2019s presence has permitted creators to expect their\npassionate projects to see light of day.\n\n\n\nNetflix\u2019s\nstock listed on NASDAQ jumped 9.3% on the day of its global launch.\nHowever, since then, the\nglobal reach has become a pressurizing market expectation as Wall\nStreet analysts mince\nno words as they\nask for subscription and revenue growth to service the\nmounting debt of approximately US$20 billion. The ratings agency\nMoody\u2019s has already assigned Ba3 rating to Netflix \u2013 which simply\nmeans that the agency called the debt a non-investment grade\nspeculative security. However, Moody\u2019s qualified the rating by\nsaying that the stable outlook \u201creflects\nour expectation that Netflix\u2019s operating results will improve\ngradually and the company will de-lever through revenue, EBITDA and\nmargin growth\u201d \u2013 which is financial\njargon to say that Netflix should continue to pay off the interest\nand the principal debt amount by growing its revenues and profits in\nthe future.\n\n\n\nTo\nmake this prediction a reality, it can\u2019t be emphasized more that\nNetflix will have to win in emerging markets like India. But this is\nexactly where its business model seems to be hitting a roadblock,\ni.e. the difficulty\nof capturing\nusers in markets with enormous number of households but with much\nlower disposable\nincomes and wide linguistic and cultural diversity. \n\n\n\n\nPresently,\nNetflix\u2019s market share in the video streaming market in India\nstands at a meagre 2%, behind even Amazon Prime Video which is in >4%\nrange. Even though Netflix\u2019s billboard ads dominate the landscape\nof any metro city in India, however, given the subscription plans\nranging between INR 500 to 800 per month \u2013 costlier than Netflix\nplans in Japan and Canada \u2013 achieving success amongst\nprice-sensitive Indian masses has proven to\nbe tough going, given the ground reality of\nIndian video streaming industry shaped by following on ground\nfactors:\n\n\n\n India\u2019s unique content streaming ecosystem \u2013 Indian curated (i.e. non-user generated like YouTube etc.) video streaming ecosystem is dominated by the same players who have traditionally done well in the cable & satellite pay TV ecosystem, viz., Hotstar (owned by Star); Zee5 (Owned by Zee); Voot (Owned by Viacom18); & SonyLiv (Owned by Sony India). [it should be noted that Star, Viacom18 & Sony India are Indian entities of US based Fox (soon to be Disney), Viacom and Sony respectively \u2013 while Zee is owned by the Chandra family.] Therefore, unlike their US counterparts, Indian broadcast companies were quick to realize the threat posed by digital disruption and started offering their content on own apps. Thus, Netflix\u2019s opportunity of coming in and shaking the ecosystem was diminished greatly as Indian broadcasters were busy sprucing up their forts. The Indian broadcasters coming from a long experience of knowing the consumption and spending patterns of Indian consumers offered their TV and movie content in ad-supported manner rather than forcing consumers to pay subscription over and above the cable TV & mobile data expenses they were already incurring. Again, they were working on a content streaming business model different from that of Netflix. Even when the Indian players did offer subscription, they did so at extremely cheap rate \u2013 as low as INR 99 per month or INR 499 per year for Zee5 \u2013 and they didn\u2019t shut down the ad-supported part of their offerings. Moreover, other subscription-based content streamers like Amazon Prime Video offered their product at a very competitive price point of INR 999 per year and bundled it with their other offerings such as Prime delivery service and Amazon Music \u2013 thereby making it a value proposition for the Indian consumer. Moreover, it has successfully bundled its prime bouquet with telco carrier packs and other market offering and this tactic has been replicated by Indian players with considerable success.\n\n\n\n The way in which Indian M&E industry has traditionally served consumers \u2013 Netflix will have to accept the fact that there was a thriving media industry in India before it landed on the shores and the industry did not operate in a vacuum without understanding its consumers. The two primary sources of video entertainment for Indians \u2013 TV and films \u2013 have had to keep their prices low to lure consumers. In fact, the ARPU for Indian cable & satellite industry is arguably the lowest in the world at around USD 3 \u2013 4 per month and at this price point the Indian consumer expects access to drama, news, sports, films and more. This has left its imprint on the business models of Indian digital streamers as they are offering not only standalone titles like Netflix, but live streams of TV channels from all genres, including news, and in multiple languages. Moreover, Hotstar and SonyLiv even offer a wide selection of cricket and non-cricket sports. This makes them well-rounded and an effective replacement for cable TV, which Netflix is far away from being. Coming to films, they have long served as one of the main weekend outings for Indian masses, and, over time have been able to build a more premium touch through mushrooming of multiplexes. The CEO Of Netflix, Reed Hastings, has been known to say that he\u2019s targeting this section of population which spends INR 1000 \u2013 1500 for a film outing as Netflix can offer much more content at a lower price\/month while sitting at home. However, it must be noted that Indian household expenditure operates on an \u201cor\u201d basis rather than \u201cand\u201d basis \u2013 meaning that if they spend on Netflix, then the movie outing has to be canceled, something a lot of households may not be keen on.\n\n\n\n\n\tEconomic indicators of Indian population \u2013\n\tWith a per-capita income of less than INR 1.4 lacs per year, India\n\tis, at best, a\n\tlower-middle income country with a very\n\tlow average disposable income. Therefore, the population that can\n\tactually spend on subscription based streaming services is quite\n\tsmall and will remain so for some time to come. The good news is\n\tthat India is expected to grow fast in the coming decade and average\n\tincomes should double, or\n\tgoing by some estimates, even triple. Therefore, a\n\tchange in consumption patterns will\n\thappen, albeit only gradually.\n\n\n\n\n\n\tCensorship and other policy concerns \u2013\n\tAll forms of content have attracted some or the other kind of\n\tregulation in India. As online content gains popularity, there\u2019s\n\tno reason to believe that the Government\n\twould continue to maintain a hands-free\n\tapproach. Apart from content regulation,\n\tthere are concerns emerging from regulation\n\tof OTT\/apps and other such challenges.\n\tHowever, as reported in the media,\n\tNetflix is already partnering Indian players on creating\n\tself-regulation guidelines while Amazon Prime Video continues to\n\toppose the same.\n\n\n\n\nBased on the above factors, one can say that India has never been the market which adjusts itself for others. Rather the entrants must make themselves relevant to the Indian populace. Given the low disposable income and multiple competitors offering linguistically diverse content at free-to-low prices, it is up to Netflix change itself to gain critical mass. It can\u2019t simply harp on offering \u201cbetter content\u201d, as others will copy such a strategy, with lower prices. This has already happened in the case of smartphones, where Chinese manufacturers such as Xiaomi and BKK (owns OnePlus, Vivo and Oppo) have ensured that the Apple can never rise above the 1-2% market share in India without changing its fundamental business strategy.\n\n\n\nNetflix has shown desire to adapt to Indian scenario by acquiring and commissioning content in regional languages, pondering over a lower-priced, mobile-only plan, allowing a download feature and bundling subscriptions with telco carriers\u2019 packs. Hence, the industry can expect Netflix to innovate its business model in India and grow.\n\n\n\nThe author is a veteran of the Indian media & entertainment industry.