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Netflix's India Problems are Many. What can the OTT Major Do?

Netflix's India Problems are Many. What can the OTT Major Do?

The OTT major is grappling to crack the India market because of an identity crisis manifesting as content dilemma. Is the global streamer willing to shed its elite image to make more Indians pay for its content?

Image: Reuters Image: Reuters

Sacred Games season 1 was the talk of the town when it came out. The eight-episode adaptation of Vikram Chandra’s novel got Indian subscribers to sign up to Netflix. Content producers wanted to take their shows to Netflix and it seemed like the California-headquartered video streaming service had made its mark in India. That was 2018.

Cut to four years later and the global streaming giant is in need of a similar game-changer in India—one of the largest markets with scope to grow at scale, but also one that frustrates Founder and Co-CEO Reed Hastings. “In every other major market, we’ve got the flywheel spinning. It frustrates us that we haven’t been as successful in India yet,” he said during the Q4 earnings call in January, weeks after announcing an up to 60 per cent price cut across subscription plans in India. “But we’re definitely leaning in there,” he was quick to add.

The next earnings call over Q1 results, where revelations that it lost 200,000 subscribers globally, and expects to lose another 2 million in Q2, erased more than $50 billion in investor wealth. However, it showed that Asia-Pacific had emerged as a bright spot. The region saw nearly 1.1 million subscriber additions, with the OTT service seeing “nice growth in a variety of markets including Japan, India, Philippines, Thailand and Taiwan”, according to its letter to shareholders.

Netflix doesn’t provide country-wise numbers. But even assuming that a chunk of the additions came from India, it still doesn’t take its estimated 5.5-million-strong subscriber base within touching distance of Disney+ Hotstar’s nearly 35 million or Amazon Prime Video’s 19.7 million (see charts), let alone Hastings’ stated goal of acquiring 100 million subscribers in India.

To be fair, Disney+ Hotstar and Amazon Prime also have cricket and shopping, respectively, to keep subscribers hooked. But despite Netflix slashing its subscription prices in India, its plans are among the most expensive in the country. Meanwhile, Amazon has raised its subscription price by 50 per cent.

“The kind of subscriber that comes in at the Rs 199 plan has a different content consumption sensibility and preference compared to someone who comes in at Rs 649. Netflix’s content is more suited for the Rs 649 customer, but the pricing is significantly lower. Therefore, retention is a big challenge because they are not in a position to satisfy the content requirements of that customer,” says the head of an OTT service, on condition of anonymity. “They are unable to scale to the likes of what Disney+ Hotstar has done because of the kind of content they offer,” says Karan Taurani, Senior Vice President and Research Analyst at Elara Capital, which tracks the space.

But Uday Sodhi, Founding Partner of consulting firm Kurate Digital Consulting, doesn’t think India is tougher for Netflix than it is for any other OTT player because the subscription market in India itself is small. “We only have 40-50 million paying OTT subscribers in a market with 500 million broadband users. That’s only 10 per cent.” Sodhi, who is the former head of SonyLIV, says Netflix is in a much better position because it is the single-largest revenue player with a 30 per cent share of the SVOD (subscription video on demand) market. “In a market with 90 million subscriptions (studies indicate that one paying Indian OTT subscriber pays for around 2.4 OTT services), they have 6 million subscribers who are paying an average of four to five times what they pay other OTTs,” he says.

Netflix does account for a third of India’s SVOD market with a revenue of Rs 1,569.35 crore in FY21, which is a 67 per cent jump over the previous fiscal’s revenue. But it also saw an equal rise in expenditure to Rs 1,551.84 crore in FY21. Also, its net profit has not kept pace with revenue growth, growing from Rs 8.91 crore in FY20 to Rs 10.72 crore in FY21.

Hastings said in December 2019 that the firm planned to invest Rs 3,000 crore on original Indian content over two years. London-based global research agency Omdia’s ‘India: Online Video Trends’ report pegs Netflix’s investment to create original Indian content at Rs 1,500 crore ($200 million) for calendar year 2021 alone. It has launched more than 90 original titles in India so far. Bela Bajaria, Netflix’s head of Global TV, who was recently in India, had also told Business Today that “the investment in India is a big one… We are fully committed to creating quality content from India”.

At the moment, though, the company is struggling to strike a balance between revenues and profits, while its content costs are shooting up. For example, multiple industry sources told BT that despite rivals refusing to pay more than Rs 40 crore to acquire the rights for Alia Bhatt-starrer Gangubai Kathiawadi, Netflix ended up paying substantially more. The sources added it was hard to understand the logic behind the expensive acquisition given that the movie made Rs 129.10 crore at the box office, according to film trade portal Bollywood Hungama, yielding at best a return of 1.5x on the budget. A film is considered a hit when it makes returns of 3x-4x.

While Netflix’s revenue has increased, the rise may not necessarily be an accurate indicator of the success of its content investments in India. This is because analysts and experts say Indian viewers prefer its international titles over its Indian originals. For instance, consulting firm Ormax Media—which tracks weekly viewership numbers for OTT content—found just one Netflix show in its list of top 15 series on SVOD platforms between January 2021 and April 2022—the Spanish drama Money Heist Part 5 with 15.8 million unique viewers in India. This list is topped by Disney+ Hotstar’s Hindi thriller Rudra, a remake of the British show Luther, with 35.2 million unique views. Amazon Prime Video’s The Family Man has 26.1 million views. However, within Netflix’s own top 15 originals in India, while two of the top three spots are occupied by international titles—Money Heist at No. 1 and Squid Game at No. 3—11 of the overall top 15 are Indian shows.

Reed Hastings, Founder and Co-CEO, Netflix

The head of the OTT service mentioned earlier gives full credit to Netflix for going big on investments, working with talent like Anurag Kashyap and Red Chillies Entertainment, and offering some of the highest budgets. “Unfortunately, what has gone wrong locally is execution and (a clear idea of) what my sensibility is and which target audience I am appealing to,” he says. Several others interviewed for this story say Netflix has already cleaned out the realistic pool of subscribers available to it, given its western gaze. Cutting prices further may not help when its content sensibility doesn’t match its consumers’. What it really needs is a recalibration of its internal content compass to either being a premium niche brand or a mass brand. This becomes significant especially when OTT competition is heating up with Voot’s parent, billionaire Mukesh Ambani’s Viacom18, landing a Rs 13,500-crore investment led by media veterans James Murdoch and Uday Shankar.

“They need at least one tent-pole show which cuts across India. Until you build franchises like Mirzapur [on Amazon Prime Video] where you can do multiple seasons, no matter how much you cut prices, the audience will still question if they have to pay for one more service,” says Shailesh Kapoor, Founder and CEO of Ormax Media. “A huge portion of the current audience they have is from the Hindi-speaking market of North and West India. They don’t have much of a presence in the East and South. They probably need to create content for their taste as well,” says Taurani.

It is certainly not for a lack of trying. But unsure of their direction, the team has been squashing or holding off on projects, say industry insiders. Prominent among them is Baahubali: Before the Beginning—a prequel to the blockbuster Telugu films that began production a few years ago—on which more than Rs 100 crore is believed to have been written off, three sources told Business Today. Reportedly, Netflix has indicated that it plans to reboot the production, but it is yet to see the light of day.

Of course, Netflix pays for the direct costs even on cancelled projects, but its approach is causing some concern in the content creation community. “You need to have conviction when you decide to make something. Otherwise, don’t action it,” says a content producer, requesting anonymity.

Part of this could perhaps be attributed to churn in the India team. Attrition is normal in any business, but Netflix seems to have been hit harder than normal. For example, Srishti Behl Arya, who was the director of original films for India and the person behind more than 35 original films such as Guilty, AK vs AK and Serious Men as well as Tamil and Telugu anthologies Paava Kadhaigal and Pitta Kathalu, left in May 2021. In the year preceding her exit, Swati Mohan (director, marketing) and Nimisha Pandey (director, international originals), Aashish Singh (director, original films) and Divya Pathak (director, publicity) had quit the team.

In response to a detailed questionnaire, a Netflix spokesperson told Business Today: “We’ve seen an exciting response to the price change in India and we are focussed on ease of access through partnerships with Jio, Airtel and Tata Play, multiple TV, mobile phone and device manufacturers and payment methods like UPI AutoPay... We’re focussed on viewing and revenue growth by continuing to improve all aspects of Netflix—in particular the quality of our programming and recommendations, which is what our members value most.”

Netflix, which prided itself on being an ad-free platform, is now open to the idea of having commercials. “Those who have followed Netflix know that I’ve been against the complexity of advertising and a big fan of the simplicity of subscription. But as much as I’m a fan of that, I’m a bigger fan of consumer choice. And allowing consumers who would like to have a lower price and are advertising-tolerant [to] get what they want makes a lot of sense,” said Hastings at the latest earnings call. That just may be a good idea for Netflix in India, says Abhishek Rege, CEO of Endemol Shine India, which has produced content for the platform. “We have a history of advertising, subsidising or sponsoring our content. That, together with Netflix’s foray into gaming and potential linear or shuffle TV rollout, could actually be the accelerators for its next round of growth in India.” But it may not be an easy task. It comes back to the question of subscriber base because advertisers need eyeballs and AVOD (ad-based video on demand) only helps monetise non-paying users. Netflix will have to go in for more mass market entertainers and shed its intellectual image, experts say.

In its current form, according to Naresh Gupta, Co-founder and Chief Strategy Officer of media communication company Bang In The Middle, there is low interest from the mainline brands to advertise on Netflix, and it won’t feature high up even in the plans of the premium brands that may want to. “Netflix has the same problem that HBO and Star Movies had in the past. Its English-focussed library means that brands get a very small advertising opportunity, which they are happy to ignore,” says Gupta, adding that Netflix has to act like an influencer and look at content integration and partnerships on social media rather than a pure ad-serve model to be successful. “If Netflix has to get into AVOD, it has to expand its target audience and content offerings to other regions,” says Taurani.

Ormax’s Kapoor says there is a large AVOD audience within the OTT viewership—which binges on YouTube and MX Player—waiting to be tapped. “There are many people who have not taken their first subscription. That large base, over the next one to three years, will think about paying, and that base will continue to grow. The question is, will they pay for Netflix?”

Rather, is it willing to alter its sensibilities to get more Indian users? While the hunt for the next big hit is on, Netflix will need to get its act together in India.