NETFLIX IN INDIA: THE WAY AHEAD

NETFLIX IN INDIA: THE WAY AHEAD1

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Tripti Ghosh Sharma, Suraj S., Mitali Srivastava, Tarun Chandoke, and Prachi Prakash wrote this case solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Copyright © 2016, Richard Ivey School of Business Foundation Version: 2017-02-22

Today, you are witnessing the birth of a new global Internet [television] network. With this launch,

consumers around the world—from Singapore to St. Petersburg, from San Francisco to Sao Paolo—will be able to enjoy . . . shows and movies simultaneously: no more waiting. With the help of the Internet, we are putting power in consumers’ hands to watch whenever, wherever, and on whatever device.

Reed Hastings, chief executive officer (CEO) and co-founder, Netflix, Inc.2

On January 6, 2016, Netflix, Inc. (Netflix) announced the addition of 130 countries to its list of countries— a list that already comprised 60 countries—and entered India. In April 2016, India represented a mobile subscriber base of over 1 billion.3 By the end of 2016, India was expected to contain an Internet subscriber base of 500 million, with 60 per cent of these users accessing online content through smartphones. Due to low broadband penetration and a lack of robust Internet infrastructure, the younger generation in India was more comfortable watching video content on smartphones than on computers or televisions (TVs) (as was more common among Western consumers).4

However, six months after Netflix’s launch in India, as the initial buzz surrounding the entry subsided, important questions loomed: Would the company be able to rise up to the challenge and meet the needs of Indian consumers? Was the Indian market or consumer seasoned enough to adopt a more sophisticated model of subscription video on demand (SVoD)? How could Netflix get a stronghold in a market that was still grappling with basic infrastructure problems and low Internet penetration?

Netflix faced numerous problems in India, but the opportunities that this lucrative market presented were undeniable. The company’s management would have to think carefully about the way forward.

SVoD MARKET IN INDIA

SVoD was a relatively new concept in India. SVoD services had gained popularity in India with the launch of websites like Hotstar and Eros Now. By December 2016, these players were offering their services for free

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because the industry was in the nascent stage. Another popular SVoD provider in India was HOOQ, a Singapore- based start-up that provided access to over 15,000 movies and TV shows across genres and languages.

By fiscal year 2016, the revenue generated from the SVoD segment in India amounted to US$86 million,5 expecting to show a compound annual growth rate (CAGR) of 10.8 per cent between 2016 and 2020.6 Although high-speed connectivity was expected to reach 622 million mobile broadband subscriptions by 2021, SVoD revenues in India were expected to amount to only $125 million in 2021—less than 2 per cent of the country’s projected subscription revenue for pay TV.7 User penetration was expected to grow from 0.57 per cent in 2016 to 0.86 per cent in 2020, and the number of users was expected to grow to 8.5 million by 2020.

MARKET TRENDS AND CONSUMER PREFERENCES IN INDIA

By 2015, close to half of total mobile data traffic was expected to be consumed via video content. Experts estimated a CAGR of 83 per cent for over-the-top (OTT) video content demand in the country in the following five years.8 This estimation was propelled by the changing pattern of media consumption in India.

As in the rest of the world, the increase in digital video consumption had no immediate effect on TV viewership in India. However, there was a shift in trends regarding the different formats of media consumed online, like episodes, films, short-form content, news, social interaction, and education.9 In March 2011, there were 31.9 million unique online video viewers in India, who watched 1.86 billion videos in total. By March 2013, the number of online video viewers increased by 69 per cent to 54 million, and the number of videos viewed amounted to 3.7 billion. Analysts estimated that the number of online video viewers in India exceeded 200 million by the end of 2014.10 By 2020, the digital video subscription market was expected to comprise 35–40 billion users, with a monthly average revenue per user of 60 per cent and approximately 10 per cent paid penetration among online video users (see Exhibit 1).11

Studies had found that, globally, there was a linear relationship between Internet speed and video consumption.12 The absence of a robust broadband system in India left much to be desired. Most video content was accessed through smartphones (see Exhibit 2), and Indian smartphone users spent comparatively more time on their smartphones than watching TV.13 The addition of larger phone screens for viewing had increased users’ viewing time and had also driven companies in the entertainment industry to develop content that worked across platforms and channels. The consumption of high-definition (HD) and ultra-high-definition (UHD) video content was expected to increase with a combined share of 21 per cent of online videos in 2018—up from 4.5 per cent in 2013.14

With a population of 1.2 billion people, in terms of both demographics and languages, India could be defined as a cluster of markets—each market having its own unique demand and behaviour trends. Indian consumers were unique in their consumption of online video content, preferring both long- and short-form video. Across age groups, genders, and regions, there was a high inclination towards movies. Customers preferred to watch recent movies over other available content. YouTube was the most popular on-demand video content provider and received around 60 million unique visitors from India per month.15

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