Inc dropped the ball?
Media analysts were asking the question soon after the $25 billion streaming giant’s earnings call last week. The company behind shows like The Crown, The Queen’s Gambit and Trapped is the world’s largest pay-driven OTT at 210 million subscribers. It had missed its subscriber acquisition target in the first quarter by two million. Did Disney+, which has raced to 100 million subscribers in a year, have anything to do with it? Has Netflix
finally found its match?
Some of the questioning spilled into India. After five years and an estimated Rs 1,500 crore in revenues, Netflix
controls a huge 45 per cent of the subscription video business. But on the number of subscribers, Disney+ Hotstar
(26 million) and Amazon Prime Video (17 million) look way more impressive than Netflix’s 4.6 million. All of them were launched or came to India around 2015-2016. In 2018, Netflix co-CEO Reed Hastings had declared that the firm’s next 100 million subscribers would come from India. “In the context of their ambition, the number looks small,” says a senior industry official.
“Five years since its launch, with its adjusted price for India and content investment push, the service should be clocking higher numbers,” says Mihir Shah, vice president, Media Partners Asia (MPA). He has a point. Over 400 million Indians watch streaming video. From about Rs 9,600 crore in 2019, OTT rose to Rs 10,700 crore in revenues by 2020, according to MPA. This growth was led by subscription, while advertising fell. India now has an impressive 58 million OTT subscribers. MPA predicts this will go to 200 million by 2025. Why then doesn’t Netflix have a larger share of this huge market? Has it chosen to play the value game only?
When contacted by Business Standard for this article, the company declined to comment. “There is no single answer to whether Netflix is doing well in India or not,” says Constantinos Papavassilopoulos, associate director, consumer research (and India expert) at UK-based Omdia. He points to the first of the two reasons Netflix’s relationship with India goes way beyond simple growth compulsions: “India was the first market they launched the Rs 199 mobile only plan in. It was then rolled out in other countries. In March 2021 they tested an HD (high definition) plan for Rs 299. India is a test bed for Netflix.”
Though it had some big subscriber gains during the lockdown last year, Netflix is still seen as an elitist brand — on both content and pricing. That is strange given that it broke through in the US by offering streaming at $8-12 against cable’s $40-60 a month. In India, its price ranges from Rs 199 to Rs 799 a month against, say, Rs 150-200 for cable TV. One industry insider analyses: “Netflix’s average revenue per user is close to Rs 500-600 per month or about Rs 6,000 a year. For Amazon Prime Video, it is Rs 999 a year, Disney, SonyLIV, everything is roughly in the same range. Their (Netflix’s) strength is international content. The number of people who consume international content is finite. The first scale up to 3-4.5 million was easy. As you go deeper, at Rs 6,000 a year, the value proposition just doesn’t work.”
To grow from here, Netflix will need to localise in a way that Amazon Prime Video has done. You could argue that Prime is about shopping, that its numbers come from shoppers logging in. But “Amazon Prime Video has both depth and width of content (across regional languages). So many of its shows are in seasons 3 and 4. How many franchises are there from Netflix?” asks Shah.
Prime Video shows like Mirzapur and Paatal Lok or films such as Soorarai Pottru and Drishyam 2 are part of conversations. “After Sacred Games which Netflix show has been a conversation point?” asks the insider. That seems unfair. Since its entry into India in 2016, Netflix has announced over 90 productions across films, series, unscripted and documentaries. Many of these, such as the whimsical Ludo or the surreal AK vs AK have won critical acclaim. Papavassilopoulos points to the $400 million that Netflix has committed to content production in India. “Indian content has global appeal and it travels well,” says he. That makes India a critical hub for sourcing programming, the second reason Netflix’s India connection is different. The pandemic in India and how long it will affect content production was a point of concern in the earnings call.
That brings us to the key issue of content. Netflix’s gaze is rather Western. Its choice of programming, the look and feel of it is influenced by the international market. More than pricing, content is what Netflix needs to fix, say analysts. As Shah puts it: “You have three bullets: Pricing, partnership and content. The first two have been fired, the third one has to fire now.”
Disney+ vs Netflix
Theirs was a battle everyone was waiting for. When the $65-billion Walt Disney Company decided to push ahead with streaming in 2020, all eyes were on the company that had birthed this business: Netflix. “Our largest competitor for TV viewing time is linear TV. Our second-largest is YouTube. And, Disney is considerably smaller, but we're sort of in the middle of the pack,” said Reed Hastings, co-founder, chairman, president and co-CEO of Netflix. Hastings has maintained that Netflix’s fight is with the broader array of things that consumers want to spend time on, including sleep. While Netflix has probably watched Disney+’s success warily, it remains focused on the big picture. That is why a 2 million fall in consumer acquisitions, soon after a record 40 million gain in 2020, is not worrying. Analysts, in Europe, agree. “The first quarter of 2021 is driven by Covid not competition. Disney+ and Netflix are complementary services,” reckons Tony Gunnarsson, principal analyst, TV, video and advertising at the UK-based Omdia.In 2019, Disney+ was trading at just over $150 a share, while Netflix was at just over $340. Earlier this week Disney was trading at a high of $190 against $500-plus for Netflix.