Why India is a ‘frustrating’ market for Netflix

India is one of the world’s fastest-growing markets for OTT or video-on-demand platforms, a space currently seeing intense competition. But it has proved to be a tough market to crack for streaming giant Netflix.

“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,” Netflix CEO Reed Hastings said in an earnings call for the fourth quarter of 2021.

For the October-December 2021 quarter, Netflix added 8.3 million subscribers. But it projected adding only 2.5 million subscribers in the January-March quarter of 2022, down from 4 million it added a year ago—the lowest growth since 2015.

This also led the streaming giant’s stock to plummet as much as 24 percent Friday.

Netflix’s performance in the fourth quarter was led by the Asia Pacific region, where it added 2.6 million new paying subscribers, led by solid growth in India and Japan.

However, in India’s fast-growing OTT market, Netflix is still a distant third. According to research firm Media Partners Asia, while Netflix doesn’t disclose subscriber figures for India, Netflix has a current subscriber base of about 5.5 million in the country.

This is far lower than Amazon Prime Video and Hotstar, which have around 22 million and 46 million subscribers, respectively. This even as Netflix looks to spend Rs 3,000 crore on content in India.

Netflix also had to slash pricing in India by nearly 60 percent to keep up with other pricing of other platforms. Until then, Netflix’s basic plan started at Rs 500 a month while the likes of Amazon were charging Rs 999 for the entire year.

“We felt it was the right time to decrease our prices, to increase accessibility to all of that sort of those incremental value or features that we have been trying to deliver to the market to more Indian consumers,” Greg Peters, COO and Chief Product Officer of Netflix said. He added the price slash followed a whole set of activities Netflix has been doing in India and learning more about Indian consumers tastes.

So why is the Indian market ‘frustrating’ for Netflix, and will a price slash suffice?

Netflix called India fairly unique in its letter to shareholders because pay-TV pricing is very low.

“We believe these new prices will make Netflix more accessible to a broader swath of the population – strengthening our value perception,” it added.

Experts say slashing prices will help bring in new subscribers, especially those who may have been using the service through password sharing. Lowering prices to as low as Rs 149 for the mobile plan will also open up a new consumer base in tier 2 and 3 towns.

However, content is key, and experts say Netflix will have to change its positioning and image of being global or international and bring in regional content.

“Netflix’s idea is first to probably to cut pricing in India first and then figure out content,” Karan Taurani, Senior Vice President-Research Analyst, Elara Capital, says.

Karan says focusing on better execution in regional content is key for Netflix. A sizeable portion of the country speaks Tamil, Telugu, Kannada, Bengali, and other regional languages; making content tailored for them is unavoidable in a market like India.

“Netflix’s content positioning has to change. For someone who hasn’t watched Netflix, the perception is that it has more of English content, more international. Nobody does global content like Netflix, but it needs to have more local language pull – more regional content and across different genres. Also, Netflix doesn’t have a concept of family shows,” a media analyst says.

Meanwhile, the likes of Hotstar, Prime Video and Zee5 have been aggressively pushing regional content. While Zee5 has said in recent media reports that almost 50 percent of its viewership comes from regional content, Hotstar had over 40 percent viewership coming from regional content back in 2019.

A FICCI-EY report from March 2021 estimated the share of regional language consumption on OTT platforms will cross 50 percent of total time spent by 2025. And experts believe cracking this will be key for Netflix to get a strong foothold in the Indian market.

In addition to regional content, a large focus on originals too will help drive Netflix’s growth in India, experts say.

To be sure, Netflix has said recently it is focusing not just on the original content but also on having more local and regional content, especially in Tamil, Telugu and Malayalam.

In terms of subscribers, another major segment Netflix lags behind others, especially Hotstar, in India, is sports content.

According to a media analyst, 80 percent of Hotstar’s subscriber base is driven by sports, especially cricket. It’s the platform digital viewers turn to for the biggest cricketing events thanks to the ICC, BCCI rights it holds till 2023 and IPL till 2022.

The battle of OTT platforms in sports is also heating up, with Amazon also eyeing sports tournaments. Its entry was bagging India rights for all cricket in New Zealand till 2025-26. It is reportedly also looking to bid for IPL media rights that will soon open up for 2023 till 2027.

Another player set to bid for them is SonyLiv (which is set to be merged with Zee), a large player in the sports space with football, tennis, wrestling, cricket, and MMA.

“The battle for premium cricket rights will begin afresh in 2022 starting with IPL; we expect Disney, Amazon, Facebook, Jio and Sony to be jockeying for pole position,” Media Partners Asia said in a July 2021 report.

However, Netflix has never had a sports play, nor do experts expect Netflix to enter the fray in the foreseeable future.

Elara’s Karan says while sports content is necessary for scale, overdependence on sports is also not sustainable, especially from a return on investment (ROI) point of view.

Even as Netflix tries to find its feet in the Indian market through low pricing, India is a complex yet large market, the media analyst quoted above says one cannot rule out new players, especially regional ones, entering the market and doing well and Netflix thriving with them.

And the opportunity is large. According to a CII-BCG report on the media and entertainment industry, India has seen a 4x jump in the number of OTT platforms, a 4x increase in the share of digital in total video watch time, and a 40-50X increase in data consumption, with video being the largest use case.

As per the report, OTT revenue is expected to grow to $13-15 billion over the next decade at a growth rate of 22-25 percent.

Netflix, too is nowhere close to giving up and remains optimistic about the Indian market. Especially after the success, it has had in cracking the Brazil and Japan markets, COO Peters said in the earnings call.

“We are quite bullish that India isn’t fundamentally different in some way that we can’t figure out how to tailor our service offering to be attractive to Indian consumers who love entertainment. We know that for sure. And so that, I think, gives us a lot of optimism just to continue to work away at it,” Peters added.