The three challenges facing Netflix’s expansion in India

Last week saw two developments of significance in the Indian video-streaming space. The first was Amazon Prime offering eight other video channels bundled with its own. The second was Netflix chief executive Reed Hastings visiting India and pledging that his company would continue to invest big in India and commission its first post-production facility next year.

India’s importance to the US leader is not about today, but about tomorrow. According to regulatory filings, its Indian arm recorded revenues of ₹920 crore, or about $120 million, in 2019-20, the latest available. That’s just 0.6% of Netflix’s global revenues of $20.2 billion for 2019. But India is growing at a scorching pace: in 2019-20, Netflix nearly doubled its Indian revenues. And it offers scope for growth, especially if priced right.

While Netflix does not release data on Indian subscribers, something can be gleaned from its numbers for Asia-Pacific. Of its four regions, Asia-Pacific is the smallest piece, bringing in $2.4 billion of its $24.8-billion revenues in 2020. But it grew at 61%, the fastest among the four regions. As a result, the share of Asia-Pacific in Netflix’s revenues has increased from 6% in 2018 to 10% in 2020.

Asia-Pacific is the smallest piece in Netflix today, but the fastest growing
Asia-Pacific accounted for 13% of the paid subscribers that Netflix ended 2020 with. But in a year defined by a pandemic that closeted everyone at home, 25% of Netflix’s net subscriber additions came from Asia-Pacific. Only its Europe, Middle-East and Africa segment did better. To sustain such growth in India, Netflix is up against three challenges.

One in every four new subscribers for Netflix in 2020 came from Asia-Pacific.

Expansion Challenge
Netflix had 4.6 million subscribers in India in 2020, and the projection for 2021 was 6.1 million, according to Media Partners Asia, a media advisory firm. That’s a fraction of the 81 million urban households enumerated by Census 2011. That’s also a fraction of its leading rivals in India—Disney+ Hotstar and Amazon Prime Video—both of which are cheaper and use other levers to pull users.

Netflix India trails Hotstar and Prime in subscribers in a big way
The Disney+ Hotstar plan comparable to Netflix’s costs ₹1,499 per year, and also serves a bouquet of sports and entertainment channels. It also offers live Indian Premier League cricket matches, on whose back it has gone from 10 million to 51 million subscribers in the past 12 months. Amazon Prime Video, priced at ₹999 a year, comes bundled with shopping benefits on Amazon. Netflix lacks such content or e-commerce leverage, and its plans for screens larger than a tab cost ₹499-799 per month ( ₹5,988-9,588 per year).

Price Challenge
Netflix has been trying to widen its appeal to draw price-discerning Indians, for many of whom a smartphone is the device of both compulsion and choice. So, in July 2019, it launched mobile plans at ₹199 per month. Similarly, it tied up with Reliance Jio to bundle its plans with the former’s phone connections. The question facing Netflix is how much pricing power it is willing to cede in India to garner subscribers.

While Netflix does not release India-specific numbers, Media Partners Asia puts Netflix’s blended per user average at $5 per month (about ₹375). This is significantly lower than what Netflix averages in all its four markets, including Asia-Pacific. In the US and Canada, its main market from where it earned 46% of its revenues in 2020, it commanded $13.3 per user per month while trending up. In Asia-Pacific, it managed $9.1 while trending lower.

Netflix earns 30% less in Asia-Pacific compared to the US, and lacks pricing leverage.

Investment Challenge
Even as it holds prices, Netflix has to consistently invest in content to keep its subscribers interested. In 2018-19 and 2019-20, nearly all its combined revenues of about ₹1,400 crore went into either buying or producing content. Increasingly, the emphasis is on producing country-specific content, rather than licensing it. Netflix created 40 original shows last year and is looking at 120 shows this year.

Globally, the share of produced content in the net content assets of Netflix has increased from 13% in 2016 to 46% in 2020. But producing own content costs money. A less-popular streaming platform like AltBalaji, for example, lost ₹146 crore on revenues of ₹61 crore in 2020-21. Netflix has built a solid base. More content, especially in languages native to a country, is the way to add more subscribers there. It’s a never-ending circle, one that Netflix is playing out in India.

Netflix has been pumping greater sums to produce its own content. Live Mint