Netflix Inc May Be Losing The Plot In New International Markets

  • Netflix India's content catalogue is very small compared to the U.S.
  • Yet, its subscription is priced similarly in both markets.
  • Netflix needs to rethink its strategy for India before it's too late.

Netflix (NASDAQ:NFLX) entered the Indian market earlier this year, amid much fanfare, as a part of its accelerated international expansion plan. Netflix's CEO Reed Hastings sounded very optimistic at the launch, about its future in India, and how it could “have a great impact on [the country’s] content production and consumption patterns.” Well, it’s been more than eight months since Netflix commenced operations in India and it has little to show for it. In fact, there is a reason to believe that Netflix may struggle to even take off in the country. Let’s take a closer look at Netflix India’s brand positioning, competitive landscape and pricing to have a better understanding of its future prospects.

Netflix India Has A Small Catalogue

First of all, Netflix may still be new to India, but it has been operating in the U.S for several years now. The global streaming giant doesn’t have any shortage of media programming and it has struck licensing deals with several hundred movie studios, content creators and media distributors. It’s U.S library alone reportedly had about 7,000 movie and TV show titles by March-end. Overall, the globally popular media streaming firm is estimated to enlist over 100,000 titles.

But in spite of this exhaustive content catalogue, Netflix India’s library was reportedly 87% smaller compared to the U.S. I did some sleuthing of my own and found that Netflix India offered just 111 Bollywood movie titles. What’s more interesting is that these 111 titles aren’t amongst the latest releases; In fact, some of these titles date back to 1980s. So the actual number of latest releases (2010+) is quite small. To put this figure in perspective, about 140 Bollywood films were released in 2014 alone. So Netflix India has basically been operating in India with less than a year’s worth of domestic releases.

You’d think that the streaming giant could probably be holding back on its content catalogue in India on purpose, until it gets necessary clearances from the country’s censor board and local authorities. But that clearly isn’t the case here. Management of Netflix was very vocal when it recently revealed that it isn’t procuring any clearances or certifications from India’s censor boards, and that it’s making content available in the subcontinent, as is, without any cuts, censors or beeps.

Two reasons why Netflix isn’t releasing its content in India, could be:

  • It’s not serious enough regarding the growth prospects of India, or
  • It doesn’t see significant financial gains coming from the market.

Both reasons could be true here but the latter looks more realistic.  I’d like to add that by releasing its entire catalogue in India, movie studios and content creators would most likely demand a higher licensing fee from Netflix. This would increase Netflix’s content liabilities. So the media streaming firm could probably be just waiting to first get a sizable subscriber base in India, that generates a steady revenue stream for the company, before it opens up its content catalogue to the country.

Conventional wisdom says that this is the right move, financially speaking. So what’s the problem?

The Price Is Too High

So far into the article, we’ve established the fact that Netflix India’s content catalogue has less than a year’s worth of domestic film releases, and that it is about 87% smaller in size compared to the U.S. We also saw how it made business sense for Netflix to not release all of its media library for the Indian market, until subscriptions and revenues from the country grew to a sizable scale. But it seems Netflix left one key element out of its planning: The Indian Consumer.

Netflix Markets U.S India
Monthly Subscription Price in Domestic Currency $7.99 Rs. 500
Monthly Subscription Price in USD $7.99 ~$7.7

The problem is that Netflix’ monthly subscription price in India is same as it is in the U.S. With an 87% smaller content library, you can’t charge the same subscription price in both regions. This is a major blunder by Netflix, as Indians are known to be extremely price-conscious across the globe. You just can’t go wrong with pricing if wish to succeed in India.

If Netflix wanted to gradually release its content catalogue in India, with a laid-back approach, in tandem with domestic subscriber growth, it should have priced its subscriptions at a more reasonable level. But with this atrocious pricing structure, very few Indian viewers would actually care to subscribe to Netflix. Let’s not forget that at the end of the day, India is still a middle income developing country, with per-capita income about 90% lower than the U.S.

Also, I mentioned in my last article that Netflix was able to grab a foothold in the U.S because it was a cheaper replacement for cable. But the situation isn’t the same in India. In fact, as per the current prices, a basic level Netflix subscription costs 1.5 times than an average cable connection in India. So how can Netflix ever disrupt the market with this exorbitant pricing?

More to the point, competition in India’s video on demand market is heating up fast. There are several media streaming firms -- such as Hotstar, Ozee, Eros Now, Zenga TV, TVF Play, Spuul, Myplex, Hooq, iFlix, Hungama, Box TV and the upcoming Amazon Video -- waiting to capture a piece of this Indian media market. Ozee offers the cheapest monthly subscription of them all, costing just about $0.33 per user. And most of them are operating on a Freemium model.

The point that I’m trying to make is that most online VoD companies operating in India have an aggressive pricing structure, but Netflix seems to be going in an entirely opposite direction. This could hurt its growth prospects in India.

And lastly…

I’d like to also add that India is a huge media market by volume. For instance, 1602 films were released in the country during 2012 alone. They weren’t huge grossers but it just goes to show that there’s a big market for low-priced, domestically produced media programming in the country.

But Netflix India is yet to catch-up in this aspect. The media streaming giant has been operating in India for about eight months now, but so far, it has announced the production of only one Hindi-based show. This essentially suggests that either Netflix doesn’t count India as one of its big markets, or it’s probably still learning about the market, even after eight months of operating in the country.

I’d like to wind up by saying that when you’re a disruptive firm, looking to beat the competition in a fast-growing market, you can’t have a laid-back attitude. You have to be aggressive to change consumer trends. Until Netflix follows this approach, it will struggle to create a meaningful impact in India.

Piyush Arora Piyush Arora   on Amigobulls :
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