Netflix to maintain its India focus amidst regulatory hurdles

According to consulting firm eMarketer users for subscription-based video on demand in India will cross 150 million by 2020.

Photo by freestocks.org on Unsplash

After a lacklustre second quarter this year, Netflix Inc. said Wednesday it has clocked a revenue of USD 5.2 billion in the third quarter of 2019, a 31% increase over last year. In its Q3 earnings report, it said the company has added 6.8 million subscribers world-wide between July and September, taking the total global user base to 158 million households.

While the US, Brazil, and Canada are the top three markets for Netflix, the 22-year-old American media services giant is counting on India to add almost 100 million subscribers to its user base over the next few years. Hence India stands to become one of the most important markets in time to come.

At present, 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%. Catching up with Amazon’s Prime’s 4.4 million subscribers in the country, Netflix subscribers in India may reach 4.1 million this year.

Over the next few years, Netflix hopes to leverage off the country’s proven appetite for video streaming and add 100 million more subscribers in India alone, Netflix’s chief content officer Ted Sarandos told CNBC in an interview last year.

“If you think about the opportunity, there’s about 450 million internet users in India and about half of them are watching videos on YouTube and services like that, which makes for a very interesting, addressable market,” said Sarandos.

India, a country of many firsts

In July, California-based streaming company rolled out mobile-only plan for the India market priced at Rs 199 (USD 2.80) a month, a first such plan anywhere in the world. It already has three different monthly plans for Indian viewers ranging from Rs 499 (USD 7) to Rs 799 (USD 11.24). In comparison, annual subscription rate of Hotstar ranges between Rs 365 (USD 5.13) and Rs 999 (USD 14), while Amazon Prime offers a standard price of  Rs 999 (USD 14).

The strategy aimed at taking on its fast-growing rivals like Hotstar and Amazon–which have much larger market penetration at significantly lower price points–seems to be working for the company.

“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 latest shareholders’ letter.

The success Netflix has seen with its India specific mobile-only plan, which it says is still a very small percentage of their total user base, has given the company the courage to push it to other markets as well. During the Q3 earnings call with the investors, Netflix’s chief product officer Gregory K. Peters elaborated on the same.

“We’ve been very, very happy with the mobile plan. It’s actually performing better than we tested. We’ll look at testing that in other markets, too, that have similar conditions.”

According to a report in Financial Times, Netflix has invested more in India than any other market outside the United States. Since its entry in the country in 2016, it has announced 16 original series, and 24 films, including the gangster themed saga Sacred Games. Globally, it has released 100 seasons in local language, original scripted series in 17 countries, and plans to have over 130 more ‘Netflix Originals’ in 2020.

“We also plan to expand our investment in local language original films and unscripted series,” the company said in the shareholders’ letter.

India’s market for video-on-demand is expected to grow to USD 5 billion by 2023 from USD 500 million last year, while paid subscriber base is estimated to reach 50 million, as per research firm Boston Consulting Group.

When mobile network operator Reliance Jio Infocomm launched its service at dirt cheap rate at the end of 2016, including free and unlimited data for up to a year, it forced rivals to lower their prices as well. This, coupled with the availability of cheaper smartphones that have bigger and sleeker screens, a snowball effect took place leading to increase in video consumption in India.

Currently, India has over 450 million smartphone users, that are projected to cross 850 million-mark by 2022.

Tough road ahead

Although growing internet and smartphone penetration aided with low-cost data tariffs may paint a rosy picture for Netflix and its peers, the road ahead may not be as smooth.

A senior government official told Reuters that the Indian government is “deliberating potential censorship on streaming platforms such as Netflix, and Amazon Prime Video.”

India currently does not have any law to regulate the content of the video streaming services, unlike traditional broadcasting industry, where public content on television and radio is moderated. With a slew of complaints filed against the on-demand video streaming services, the government has become increasingly concerned, the report quoted an official source.

Netflix and its Indian rival Hotstar had signed in for self-regulation code in January, agreeing to moderate content in-house to ward-off criticism from the industry and avoid government censorship. Amazon, however, didn’t join the group.