India has been a tough market for US streaming giant Netflix to crack, a fact Chief Executive Officer Reed Hastings made amply clear in his fourth-quarter earnings call with analysts.
"In every single other major market, we have got the flywheel spinning. The thing that frustrates us is why haven’t we been as successful in India, but we are leaning in there," said Hastings.
Moneycontrol spoke to analysts tracking the streaming space to find out the reasons why Netflix has lagged behind in India.
Bundling took a backseat
"While the competitors have chosen to bundle their shows on platforms like Hotstar, Netflix not only decided to go solo but also decided to invest heavily in content. Its growth hasn’t been commensurate with that investment," said Utkarsh Sinha, managing director of Bexley advisors.
Up to 85 percent of viewership volumes of certain over the top (OTT) platforms were generated by telecom companies in 2020, said an EY 2021 report. It noted that around 284 million people consumed video content through data bundles. It is expected that around 400 million consumers will watch content via telcos and aggregator bundles by 2025.
Last year, Amazon announced the launch of Prime Video Channels, a video entertainment marketplace that brought together content from multiple partners including Lionsgate Play, Docubay, Eros Now, MUBI, Hoichoi, Manorama Max and Shorts TV, among others.
Along with bundling, pricing has been one of the key concerns for Netflix's slow subscriber growth in India.
The platform, which last year announced price cuts in the Indian market, earlier had plans ranging from Rs 499 for a basic standard definition monthly plan to a high-definition plan with four screens for Rs 649. Experts noted that while Netflix is a premium platform, even for a premium platform, it was priced too high compared to other leading players in the market like Amazon Prime Video and Disney+ Hotstar.
"Netflix is a premium product that is one of the few that decided to make India a market. If you think of global competitors like HBO Max and Showtime, they have similar cost base issues that make India unattractive as a market. The only global analogue is Amazon Prime, which has a heavy cross-subsidy with Amazon that skews its economics," said Sinha.
As for Disney+Hotstar which streams cricket content like the Indian Premier League, Nitin Menon, cofounder of NV Capital, a credit fund for the media and entertainment sector, said that platforms like Hotstar have sports content, which is a huge pull factor.
"We (India) might have around 70-80 million paid subscribers but at what price point they will subscribe for a service is very difficult to say. Indian subscribers continue to be very price sensitive, hence is one of the cheapest markets globally for OTT content," said Menon.
Metros were main focus
While Netflix is tweaking its pricing strategy by first introducing a mobile-only plan and then taking a price cut, it is the focus in terms of markets that will also play a key role, said analyst Karan Taurani, senior vice-president of Elara capital.
"They have a good depth in content but most of the shows are metro-centric, they are largely English and some of them are in Hindi. The type of content the platform has targets urban centric-metro audience. If they have to dig deep to penetrate the Tier I, II markets, localisation of content is important," he said.
When it comes to localisation of content, a regional language focus will be key, said Taurani.
Lacking local content
"South is a large market. If you look at both TV and OTT consumption, it is high there. So, one cannot go grow in this market without focusing on the South," he added.
Menon pointed out that in the initial period, Netflix focused on Bollywood a lot more. "Over the last year or so, they have understood the power of regional markets and have started to cater to that market. The south will be a very interesting market for them to focus on and cater to in the future."
Sinha thinks that Netflix has one key advantage and that content capable of producing global hits. "Think Money Heist. It has similar aspirations for Indian content finding global audiences, but so far, that bet hasn’t planned out significantly."
Regional content has taken the centre-stage in the strategy of most of the OTTs in India. From Zee Entertainment's streaming arm ZEE5 to Viacom18's Voot that recently launched its first Kannada web series, the focus is on expanding regional content.
The EY report mentioned above notes that that the share of regional language consumption on OTT platforms will cross 50 percent of total time spent on streaming platforms by 2025. Out of the original shows produced, the share of regional content has increased to 50-60 percent in recent times compared to 20 percent three to four years ago, said Taurani.
According to Manish Kalra, chief business officer, ZEE5 India, local content is the guiding force of the OTT content umbrella. "On ZEE5, almost 50 percent viewership comes from regional language content," Kalra had said in an earlier interview to Moneycontrol.
A key trend in 2020 was the rise of many regional players like Bengali OTT Hoichoi and Telugu streaming platform Aha, among others. Hoichoi is estimated to have around 15 million subscribers, the highest amid regional OTT players. In fact, the platform comes close to the subscriber base of Amazon Prime Video that is estimated to have around 21.8 million paid users in India.
This is why Menon said that competition has increased among OTT platforms which has added to the frustration of adding subscribers.There has been a 4x jump in the number of OTT platforms in India in the last six years from 10 streaming platforms in 2014 to over 40 platforms in 2020.
Disney+ Hotstar has the largest number of subscribers, accounting for 50 percent of the market, followed by Amazon Prime with 19 percent and Netflix with 5 percent.
Disney+ Hotstar is estimated to have 46 million subscribers (26.3 million in December 2020), Amazon Prime Video at 21.8 million (17 million) and Netflix at 5.5 million (4.2 million), according to a 2021 report by Media Partners Asia (MPA), an advisory, consulting and research service.
Netflix needs time and patience
While competition is tough, Taurani said that Netflix has experienced strong growth in both user base and subscription video on demand (SVOD) revenue in India.
"While SVOD revenues in India have grown 50 percent, Netflix has grown 60 percent. And Netflix has 35-40 percent revenue share in the SVOD market. Rs 1,500 crore SVOD revenue last year without sports is good. If they have to double down these numbers in India then they have to invest heavily in regional content," he said.
But it will take some time for Netflix to be successful in India. "In the Indian market, you need to have patience. Netflix is just about 3-4 years old in India with local content and the OTT boom is also very nascent, especially in India," said Menon.
Taurani added that price cuts were not easy. "Your subscribers will grow but average revenue per user (ARPU) takes a hit. So, next year SVOD revenue may not grow as fast as anticipated," he said.