American media company Netflix’s investments in India seem to be paying off. Well, sort of.
Netflix saw its India revenue jump eight-fold to USD 65 million for the financial year (FY) ending March 2019 over a year ago. Meanwhile, its profit soared over 25 times to reach USD 711,798 from a mere USD 27,972 in FY 2018, local media Economic Times reported.
Over the last one-and-a-half years, Netflix has been investing intensively in content creation in India, focusing on the local language and original series, in a bid to woo India’s 440 million millennials.
Globally, Netflix has an annual budget of about USD 12 billion to ensure a regular flow of content on its platform. In comparison, Disney has earmarked USD 12.7 billion, while Amazon has kept the content budget at USD 3 billion, according to a 2018 research report by Boston Consulting Group (BCG). A significant part of it, Netflix seems to be channeling in India, a high-potential market for the on-demand streaming behemoth.
“Since its entry in 2016, Netflix has invested more in India than any other market outside the United States, announcing 16 original series and 24 films, including the gangster saga Sacred Games,” a recent report in Financial Times said.
For instance, while Amazon Prime spent INR 1 to 2 crore (USD 140,000 to 280,000) per episode on web series ‘Inside Edge’; Netflix spent INR 2 to 3 crore (USD 280,000 to 420,000) on ‘Sacred Games’, as per the BCG report.
Netflix kicked off the original series in India with Sacred Games in July 2018, which had a “strong start.” One of the first Indian original film, Lust Stories, became its “largest watched original in percentage terms in any individual market in its first month,” Netflix said in an earnings report last year.
In India’s USD 500-million-plus video-on-demand market, which is projected to touch USD 5 billion by 2023, the California-based company competes with Disney-owned Hotstar and Amazon Prime, as well as local streaming platforms such as Balaji Teleflims’ Alt Balaji, Viacom 18’s VOOT, ZEE Media Corp’s ZEE5, and Reliance-owned JioTV.
Netflix has been steadily focusing on its regional content strategy to crack the India market. Overall, with almost 40 video-streaming providers, India has over 300 million online video viewers, which is expected to grow to 550 million by the fiscal year 2023, the Economic Times report said.
The competition to tap half a billion Indian consumers has been intensifying in the industry. Recently, Times Internet-owned MX Player roped in Tencent to lead a USD 110 million funding round in the streaming platform.
Local content and pricing
As of July, Netflix had 13 new films and nine new original series in the pipeline for India, where it has increased investment at a faster rate than any other market.
However, it still has a long way to go.
While it expects India to potentially add 100 million subscribers over the next few years, a back of the envelope calculation by KrASIA shows the South Asian nation contributes a meager 0.4% to the global revenues and 0.05% to the overall net income.
Netflix’s investments over the past couple of years have coincided with India’s rapidly growing content consumption.
India’s media consumption has been growing at 9% over the last 6 years, one of the highest in the world, the report said. However, at 4.6 hours of media consumption (across print, radio, TV, and digital) per capita per day in 2018, India is still behind China (6.4 hours), and the US (11.8 hours).
Of the 4.6 hours of media that, on an average, an Indian consumes every day, digital contributed to 1.3 hours. The BCG report added India has about 480 million broadband users across mobile and fixed line. In the past two to three years, the data consumption has grown ten-fold to approximately 10 GB per user per month.
Growing affluence, higher electrification, spurt in the number of internet users, video-enabled devices, and availability of high-speed internet have led to growing overall media consumption in the country, BCG said in the report. It added that the trend will continue with growing literacy and device penetration.
Netflix has positioned itself as a premium streaming service since it entered the Indian market.
Its monthly charges have been almost comparable to its rivals’ annual subscription fees. For instance, the US streaming giant has three different monthly plans for Indian viewers ranging from INR 499 (USD 7) to INR 799 (USD 11.24). In comparison, the annual subscription rate of Hotstar ranges between INR 365 (USD 5.13) and INR 999 (USD 14), while Amazon Prime offers a standard price of INR 999 (USD 14).
Naturally, it stacks below competitors Hotstar and Amazon prime, both of which are tailor-made for India market and have deployed mass-market strategy with cost-effective pricing. According to data-driven research platform Oddup, Netflix has about 5% market share in the country’s on-demand streaming services industry, while Hotstar enjoys a 29% market share, followed by Amazon Prime’s 10%.
Earlier this July, the American giant did some course correction and rolled out a mobile-only plan for the India market priced at INR 199 (USD 2.80) a month, a first such plan anywhere in the world to take on its fast-growing rivals.
According to local media reports, Netflix had 1 to 1.2 million subscribers by March 2019, and that analysts, given the company’s mobile-only plan, expect this number to reach a little over 4 million this year, catching up with Amazon Prime’s 4.4 million subscribers.
“Our approach with pricing is to grow revenue and so far, uptake and retention on our mobile plan in India has been better than our initial testing suggested. This will allow us to invest more in Indian content to further satisfy our members,” the company said, in the most recent shareholders’ letter.
Correction: Netflix India profit stands at USD 711, 798. An earlier version of the article inadvertently mentioned it as USD 7.1 million. We regret the error and have made the correction accordingly.