NETFLIX-BELIEVING IN THE INDIAN SUBSCRIBER INTRODUCTION With over 117.5 million subscribers in over 190 countries consuming over 140 million hours of TV shows and movies per day, Netflix has created a paradigm shift in the consumption of entertainment content in the digital entertainment business. The company grew its streaming revenue by 36% to over $11.6 billion, adding 24 million new members to its subscriber base. This has allowed the company to double its share price enabling it to reach a market capitalisation of $120 billion. [1] The company added 7 million new subscribers in the third quarter FY18 with a Y-o-Y growth of 31% from the 5.3 million additions in the previous year and showed great resolve in its comeback from the feeble numbers of the second quarter FY18. Netflix entered India in 2016 in the midst of a growing broadband infrastructure and a potentially huge subscriber base for their globally acclaimed content. Netflix has its deft profiling algorithm and a readily available content library in store for the Indian subscriber. However, with players like Hotstar and Amazon Prime offering low subscription fee and premium delivery options for online shopping in addition to the video streaming services respectively, the challenge for Netflix for dominance in the Indian video services market has just begun. THE INDIAN VIDEO SERVICES MARKET There are about two dozen, streaming services in India with digital subscriptions rising by 50% to $60 million in 2017, and are expected to hit $309 million by 2020, according to an EY report.[2] Services like Amazon Prime and its domestic counterparts like Sony LIV, Zee5, Voot, and Hotstar form the lower price segment of the video services industry. (Exhibit 5) Netflix, however, is targeted at an audience devoted to western content and carries a higher price tag. Unlike the global players in the segment, the domestic services offer a “freemium” model for their services (except Voot, which does not have a paid subscription). A lot of content of their television programming is available for free while the paid subscription covers popular international shows and the latest movies. The Indian consumer also prefers free content over the likes of paid services like Amazon and Netflix and is willing to cancel the paid subscriptions over free content. [3](Exhibit 4) Presently, Hotstar owns about 70% share of the on-demand local streaming services market. Sony LIV doubled its share from 5.9% three months earlier, to 13%, Viacom 18’s Voot was in 1“India is a key part of international business growth: Netflix”, Madhav Chanchani, February 26, 2018,economictimes.indiatimes.com/small-biz/startups/newsbuzz/india-is-a-key-part-of-international-subscriptio n- growth-netflix 2“Streaming services are vying for dominance in India as cord cutting finally takes off”, Abhishek Baxi, March 27, 2018, www.forbes.com/sites/baxiabhishek/2018/03/27/streaming-services-are-vying-for-dominance-in-india-as-cord-cutting- finally-takes-off 3“Surprise! Netflix, Amazon are not preferred streaming platforms in India, reveals study”IANS October 19, 2018, www.financialexpress.com/industry/technology/surprise-netflix-amazon-are-not-preferred-streaming-platforms-in-india- reveals-study This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 1 third place with 11%, while Amazon Prime Video had a 5% share and Netflix 1.4%, according to estimates by research firm Jana.[4] HOT CHALLENGE FROM HOTSTAR It is predicted that in two years, digital entertainment in India will be bigger than the world’s largest film industry, with more Indians logging on to services like YouTube, Hotstar,and Netflix on smartphones, according to a recent joint report by EY India and FICCI on the media and entertainment sector. Revenue from films is expected to grow at a slower pace to about INR 19,200 Crores by 2020 compared with INR 22,400 Crores for digital at the same time.[5] Additionally, the study mentioned, Indian consumption for digital content showed up in the trend of online searches with entertainment (music and videos) becoming the largest sought-after category covering 31% of all searches. The differentiator for all service providers is providing original localised content. With the penetration of faster internet services in rural areas, the consumption of content in the local language is expected to shoot up. Data shows that Indians prefer viewing content in local languages with more than 93% of the time spent on videos in Hindi or other local regional dialects. Hotstar is capitalising on the localised content parameter by offering a wide variety of regional content which is available for free. In addition to this, Hotstar also capturing the sports- loving audience in India, with a live broadcast of sports content available on the go. For a country obsessed with cricket, Hotstar is hitting just the right notes. NETFLIX- WHAT’S NEXT? Netflix uses a customized profiling algorithm which focuses on targeting individuals instead of mass marketing campaigns. The demographics have been replaced by “taste clusters”, programming decisions on data about true viewing habits of customers. This has helped the company to acquire enough niche viewers to make a profitable business by investing right amounts in retaining customers who may not be regular viewers. According to Greg Peters, Chief Product Officer, Netflix, the company is in the nascent stages of its operations in India and will continue experimenting with different pricing models to accelerate growth and gain more market penetration. However, he also shares the opinion that with the current pricing model, Netflix has a long way to go. Netflix has set aside INR 500-600 Crores per year for its investment in original content in India. Using these finds, Netflix has launched new shows to increase its subscriber base in the country. Investment in India poses a serious challenge for Netflix which is poised to generate free cash flows before it runs out of its allocated content budget for the country. 4 “Netflix and Amazon are struggling to win over the world’s second largest internet market”, Manish Singh, July 6, 2018, www.cnbc.com/2018/07/05/netflix-and-amazon-are-struggling-to-win-over-indian-viewers.html 5 “India’s online streaming infatuation is taking over its love for cinema”, Azman Usmani, March 6,2018, www.bloombergquint.com/technology/indias-online-streaming-infatuation-is-taking-over-its-love-for-cinema This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 2 DELIVERABLES Q1. India’s Over the Top Video services market stands to grow in the upcoming years amidst increasing competition between the international and domestic players like Amazon Prime, Hotstar, and Voot etc. Netflix has invested heavily in developing original content while its competitors are providing a broader range of offerings to customers. Design a comprehensive strategy for Netflix to gain market share in India while maintaining its core focus on providing original content. Q2. Netflix has been acquiring usage rights for publication and media content globally. In August 2017, it acquired Millarworld Limited, a Scottish comic books publisher. This will help the company in expanding its business in consumer products and enhance top-line growth for Netflix. Given its heavy investment in original content and differentiated offerings to consumers, how can Netflix achieve sustained profitability in India? This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 3 ANNEXURES Exhibit 1: India’s online video streaming boom, predicted by EY-FICCI Report Image credits: Bloomberg Quint Exhibit 2: OTT services app installs in India during Q1 2017 and Q1 2018 Image credits: Cnbc.com This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 4 Exhibit 3: Global vs Regional Content in Indian Market Image credits: Economic Times Exhibit 4: Preference of subscription type of streaming platforms in India Prefer free content % Viewership more than paid content 20% Equal preference for free content and paid content 9% Prefer only Free Content 64% Prefer paid content more than free content 7% Source: Video Streaming services report, Jana This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 5 Exhibit 5: Comparison of pricing of different Over the Top service providers in India Web Streaming Service Subscription Fee Amazon Prime INR 999 Annual Sony LIV and Zee5 INR 99 Monthly Hotstar premium INR 199 Monthly Netflix Starts at INR 500 Monthly Price of Annual Subscription of video Streaming services 7000 6000 5000 4000 3000 2000 1000 0 Amazon Prime Sony LIV and Zee5 Hotstar Premium Netflix Source: Forbes.com, 2018 This Case Study has been made by Team Think Tank for its annual event: Corporate Buddha Page 6 .