Netflix’s growth in India on a slippery turf

Netflix inception and growth

Netflix was founded by Reed Hastings and Marc Randolph in the year 1997 in California. Netflix initially focused on DVD rental by mail and DVD sales. However, DVD sales were abandoned by the founders within one year of operations to exclusively focus on the DVD rental business (Pogue, 2007, January 25). In 2007, Netflix introduced streaming media and video on demand. The company expanded to Canada in 2010, followed by Latin America and the Caribbean. In 2013, the service began to acquire and produce original content, beginning with the political drama House of Cards. By 2022, original productions accounted for half of Netflix’s library in the USA, and the company had ventured into other categories, such as video game publishing via the Netflix service (Wikipedia contributors, 2023, February 16).

Netflix worldwide subscribers amounted to 231 million worldwide, EMEA region (Europe, Middle East and Africa), accounting for over 76 million of Netflix’s total global subscriber base, the USA and Canada accounted for 72 million subscribers, whereas India accounted for approximately five million subscribers (Statista, 2023, January 20).

Table 1 illustrates the timeline of Netflix expansion worldwide starting from its inception at California in 1997.

Netflix journey in India

Netflix was launched in India in 2016 but started operating and streaming content in India in April 2017. Netflix initially focused on the English-speaking audience in India who were interested in popular international TV series and Hollywood movies. However, after understanding the lingual diversity of India, Netflix started streaming vernacular content for the Indian audience. In partnership with leading local production houses, Netflix developed original content in vernacular languages for Indian consumers. Prominent production houses with whom Netflix partnered include T-Series, Red Chillies Entertainment, Pooja Entertainment, Viacom 18 Studios, Luv Films, Reliance Entertainment, RSVP Movies, Benaras Media Works, Maddock Films, Junglee Pictures, Balaji Telefilms and Matchbox Shots (Ramachandran, 2022, September 8).

Netflix’s net profit in India for the fiscal year 2017 was INR2.02m. It earned revenue of INR580m in the fiscal year 2018 (Laghate, 2018, December 28). As per a report by Morgan Stanley Research, Netflix had the highest average watch time of more than 120 min as compared to other OTT service providers in July 2018 (exchange4media Staff, 2018, September 26). Netflix Founder and Co-CEO Reed Hastings announced in December 2019 that the firm planned to invest INR30bn in original Indian content over two years.

Netflix Entertainment Services India LLP, the India arm of Netflix, had reported a 66% growth in gross revenue at INR1,529.36 crore for the fiscal year 2021 as against INR923.33 crore in the previous fiscal. Its total expenditure stood at INR555.02 crore in FY21, compared to INR72.23 crore in FY20 (Farooqui, 2021, November 6).

Over-the-top market in India

Indian video OTT market in India was projected to grow from US$1.5bn in 2021 to US$12.5bn by 2030. Native Hindi language speakers and state-wise vernacular language-speaking populations in Tier 2, Tier 3 and Tier 4 cities were expected to contribute to growth in subscription and viewership. The OTT market in India was expected to grow at a CAGR of 28.6% from 2022 to 2025 (The Economic Times, 2021, July 18). The leading players in the Indian OTT landscape were Disney+ Hotstar, Amazon Prime Video and Netflix in terms of customer satisfaction and subscriptions. Indian OTT space had witnessed the growth of many regional OTT players, such as SonyLIV, Voot, ALTBalaji, Eros Now, Zee5, Sun NXT, Hoichoi, Adda Times, etc. (Business Insider, 2021, July 15).

Reports on the mass media suggested that the majority of Indian subscribers/users viewed OTT content on smartphones. Nachiket Pantvaidya, CEO of ALTBalaji, stated that 80% of subscribers viewed their content on smartphones (Bhatia, 2020, June 2). In line with this trend, Netflix introduced its basic pricing model for streaming on smartphones. Netflix had given full access to all the available content for its mobile plan users. Most Netflix Indian subscribers were viewing content on smartphones as compared to developed western countries where subscribers preferred bigger screens. Aggressive OTT competitors in India were stepping up their attack on Netflix and were wooing the OTT smartphone segment with discounts, low-priced packages and freemium pricing. Table 2 illustrates the aggressive pricing for subscription plans by Netflix’s OTT competitors in India.

Challenge of low household income in India

Around 69% of households in India struggle with financial insecurity and vulnerability. The average income of an Indian family of 4.2 persons is INR23,000 per month. Over 46% of Indian families have an income of less than INR15,000 per month, i.e. belong to the aspiring or lowest-income cohort. Only 3% of Indian households have a luxury standard of living and belong to high-income cohorts (India.com News Desk, 2022, November 5).

India stands out as a “poor and very unequal country, with an affluent elite,” where the top 10% holds 57% of the total national income, including 22% held by the top 1%, while the bottom 50% holds merely 13% in 2021, according to the World Inequality Report 2022 (Sengar, 2022, May 25).

Despite India’s large population base of 1.412 billion in 2022 (Patranobis, 2022, July 12), the challenge of low household income combined with high inequality in income distribution make it an uphill task for foreign multinational corporations to penetrate the lower-income segments of the Indian market.

Pricing dynamics in India

Netflix started its operations in India with a high pricing strategy as compared to other competing OTT platforms. The Covid-19-induced lockdown resulted in a surge in revenue for Netflix due to the addition of new subscribers. High pricing was one of the prime reasons for the higher revenue of Netflix as compared to most of the competing OTT platforms. However, high pricing was turning out to be a pain point for Netflix in India due to the aggressive pricing plans of competitors.

Netflix started its Indian operations with only three-monthly priced plans, namely Basic (INR499), Standard (INR649) and Premium (INR799). All three plans offered access to unlimited content, the differentiating factor was the number of screens. One screen at a time could be accessed with the basic plan, whereas subscribers could access two screens at the same time with the standard plan and four screens could be accessed simultaneously with the premium plan.

An attractive subscription plan of INR199 per month was launched by Netflix in 2019 offering streaming only on mobile phones with unlimited access to content (Saha, 2019, July 26). However, this INR199 for single mobile screen viewing was considered expensive in the price-sensitive Indian market with a significant proportion of the population in the middle-class and low-income category. To increase its subscriber base, Netflix further reduced its price with effect from December 14, 2021, as shown in Table 3. Under the new price scheme, the mobile-only plan was priced at INR149 per month, instead of the earlier INR199 per month; the Netflix Basic plan was priced at INR199 per month; the plan used to cost INR499 per month earlier so this was a significant price drop. The standard Netflix plan was priced at INR499 per month, instead of INR649, which was the earlier price. Finally, the premium plan was priced at INR649 per month, instead of the earlier cost of INR799 per month (Desk, 2021, December 16).

Way forward

Reed Hastings and Netflix top management team faced the challenge of getting its pricing strategy right in India. Even with multiple price reductions, Netflix was not able to match the low pricing of its competitors. Attaining its ambitious target of 100 million subscribers from India looked almost impossible. Netflix’s top management faced the following strategic question: Should they reduce the prices in India to match the pricing of their OTT competitors, or should they continue with the current high-pricing strategy?

Netflix’s growth path in India will depend to a great extent on its pricing strategy. Netflix faces a tough battle in its attempt to increase its market share in India. Making the right decisions will ensure Netflix’s long-term continuity and growth in India.