Netflix faces rivals offering cheaper plans in India

From left: Bollywood actress Divya Dutta, director Deepa Mehta, and actress Huma Qureshi posing for photographs with young actors at the premiere of Netflix's Indian original series Leila, in Mumbai last month. Competition from both global and local
From left: Bollywood actress Divya Dutta, director Deepa Mehta, and actress Huma Qureshi posing for photographs with young actors at the premiere of Netflix's Indian original series Leila, in Mumbai last month. Competition from both global and local firms for viewers in India is intense.PHOTO: AGENCE FRANCE-PRESSE

Streaming firm up against broadcasters and carriers charging as low as 40 US cents a month

MUMBAI • Netflix, whose shares plunged after it reported the worst drop in US users since 2011, is looking for new subscriber growth in India, a rapidly expanding streaming market.

Trouble is, so are a raft of ambitious local players with cut-rate programming packages.

Already wrestling with global giants such as Walt Disney and Amazon.com, Netflix now also contends with broadcasters and Bollywood powerhouses allied with billionaire-backed wireless carriers, who are wooing users with free offers or as low as 40 US cents (54 Singapore cents) a month. That tactic has put them directly in the India growth path of the world's largest paid online streaming service.

The intense competition could derail chief executive Reed Hastings' goal of 100 million customers in India - almost 25 times Netflix's estimated subscriber base there this year.

The world's second-most populous country is a priority for the streaming service, which is effectively blocked in China. The second-quarter loss of 130,000 users in the US, reported last Wednesday, makes winning in India all the more pressing.

Netflix shares fell 10 per cent, the most in three years, to close at US$325.21 in New York trading last Thursday. That knocked about US$16.3 billion off its market value.

With a growing number of smartphones and a surge in the use of broadband, India has become a battleground for streaming services. Cisco Systems has estimated the country will have 829 million smartphone users by 2022, from a projected half a billion this year.

"We are seeing a nice, steady increase in engagement with Indian viewers that we think we can build on," Netflix chief content officer Ted Sarandos said on a call with analysts last Wednesday. "Growth in that country is a marathon."

India's video-on-demand market could grow to US$5 billion by 2023 from US$500 million last year, estimates researcher Boston Consulting Group (BCG). Paying subscribers will probably rise to as many as 50 million, while users of advertising-supported video-on-demand will reach 600 million, BCG predicts.

 

  • US$5b

    Estimated value of India's video-on-demand market by 2023, from US$500 million last year, according to the Boston Consulting Group.

Netflix has amassed more than 150 million subscribers worldwide, giving it the largest paid customer base. The US, Brazil and Canada are three of its largest markets, while Australia is the company's biggest success story in the Asia-Pacific region. India differs from most of these markets, however, in its population's sensitivity to price.

The Los Gatos, California-based firm has responded to competition in India by offering a mobile-only service at less than half the typical subscription price, and by raising spending on local content faster than in any other market.

While it is still lagging behind Amazon Prime and Disney's Hotstar, the price cuts are helping it outpace the growth of its biggest rivals, while raising questions about sustainability and margins. Hotstar built its base by streaming cricket matches that are wildly popular in the former British colony.

Netflix will probably almost triple subscribers in India this year to 4.1 million, within striking distance of Amazon Prime's 4.4 million, according to estimates by researcher IHS Markit. That is faster than Amazon or Hotstar Premium, two of Netflix's biggest competitors. Some other estimates put Netflix's base in India at between 1 million and 2 million. The company does not provide data for individual markets.

"Netflix is in a land grab to capture as many subscribers as possible, whatever the price," said Mr Michael Pachter, a managing director at Wedbush Securities. "The less they charge, the more cash they are likely to burn."

The company spooked investors last Wednesday with a report that it lost subscribers in the US and signed up only 2.8 million internationally in the three months ended June, roughly half its own prediction. It also reported its 20th quarter of negative free cash flow as it spends on adding content and replacing series and films being pulled from its platforms by competitors like Disney.

While Netflix is speeding up its investment, Indian rivals including Zee Entertainment Enterprises and Balaji Telefilms are betting on bundling their content with mobile phone services.

The TV network and Bollywood producer are allying with billionaire Mukesh Ambani's Jio wireless service and Bharti Airtel, two of the country's three biggest carriers, to offer decades of content to subscribers.

FREE ACCESS

Zee, parent of the country's largest private broadcast network, offers movies, exclusive TV content and more than 90 live channels on its Zee5 platform with content across 12 languages for as little as 70 US cents a month. Partial access to the platform is free to subscribers of mobile phone carrier Bharti Airtel, controlled by billionaire Sunil Mittal. Users of Airtel's plans priced at US$7.25 a month or more get full access to Zee5 free.

Ambani's Reliance Jio Infocomm, which elbowed its way into the country's mobile phone business three years ago with free calling and low-priced data services, has jumped into film and TV streaming, including a tie-up with Balaji Telefilms.

Mr Sunil Lulla, chief executive of Balaji Telefilms, said the company's service ALTBalaji is focused on producing exclusive content in Hindi, the country's most-used language.

Other local entrants in India's OTT, or "over-the-top", market include Disney's Hulu, Sony's SonyLIV, Network 18 Media & Investments' Voot, and Bollywood film-maker Eros International's Eros Now. Netflix's global rival Amazon is also counting on India for growth and is prepared to take time to draw users.

"We have a very long-term view for India, with a billion film-crazy people," said Mr Gaurav Gandhi, director and head of business for Amazon Prime Video, India.

"In the next four to five years, there will be more screens connected to the Internet and we are looking at distributing across all platforms with personalised and quality video content at affordable prices."

Pricing will also be crucial for Netflix. After introducing a promotional offer of about US$3.65 a month for mobile-only users, Netflix decided to make the lower price permanent as "an opportunity to broaden access to the service", said chief product officer Greg Peters last Wednesday.

"Pricing is going to be the biggest challenge," said Mr Hanish Bhatia, senior analyst at Counterpoint, a global industry analysis firm. "Indian users have not accepted the idea of paying for content yet. Two to three years back, everybody relied on Torrent," said Mr Bhatia, referring to the free protocol that lets users share and download films and TV shows without paying for them.

Netflix did not disclose how much it is spending on local content in India. It did announce the addition of five series, two of which are being produced by superstars Shah Rukh Khan and Anushka Sharma.

"Netflix wants to have one big original, almost like a new Bollywood movie, coming out every month," said Mr Mihir Shah, vice-president (India) at Media Partners Asia, a consulting firm. "In India, people pay for Bollywood. Netflix is hoping that if people are willing to pay US$10 to watch a movie together as a family, they will also subscribe."

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A version of this article appeared in the print edition of The Straits Times on July 22, 2019, with the headline 'Netflix faces rivals offering cheaper plans in India'. Print Edition | Subscribe