Netflix Makes India Debut; But Will It Work?

by Sohini Bagchi    Jan 07, 2016

netflix

Digital video player Netflix has finally announced its entry in the Indian market along with 130 other markets in Asia, the Middle East, and Europe. The announcement made by CEO Reed Hastings during his CES 2016 keynote address on Wednesday, has been hailed by some as a highly logical move. As business analyst Tarun Pathak at Counterpoint Technology Research told Reuters, ”Netflix is entering India at the right time.” However, there are concerns about whether the Netflix model work in the country?

The right timing

Way back in 2013, there was buzz that Netflix may soon begin its Indian operations. However, a company spokesperson termed it merely as a ‘global aspiration’ which after three years is turning into reality. It was then anticipated that slow Internet speed and bandwidth issues have discouraged Netflix from arriving in India. But times are a changing now. As Rajiv Vaidya, CEO Spuul India comments, “One of the key trends that will drive growth in 2016 is 4G penetration. Streaming video requires high fidelity networks with consistent speeds of at least 2-3 MBPS to deliver a buffer free experience. The launch of more 4G services should dramatically reduce data costs thus increasing usage of video on demand(VOD).” 

Read on: 3 Trends Driving Video-On-Demand In 2016

On these notes, Netflix’s renewed focus in Indian market has been driven by the fact that 4G is becoming mainstream in the country, with Airtel, Vodafone and Idea already launching 4G services and Reliance Jio offering the services to public by mid-2016. 

Also online video consumption in India is growing tremendously. In 2014, Indian Internet users consumed 41 billion minutes of videos every month, which is 15,418 minutes of online video accessed every second. Overall, 46% of all Internet usage in India happens due to video consumption, and experts believe a company like Netflix cant afford to lose this opportunity.

It is also obvious that slowing growth in the US has put pressure on Netflix to grow internationally and India - with over 300 million Internet users and a potential 1.2 billion plus that could come online in the next few years - is being seen as its next big growth market. Until recently, Netflix was available in North and South America, Australia, New Zealand, Japan, and parts of Europe. 

Currently, Netflix has 69 million paid subscribers from 40 countries with the US alone accounting for 43 million customers. The $7 billion company with over 2000 employees has chalked out major plans for 2016. Besides India, Netflix will expand massively in other Asian markets such as Hong Kong, Singapore, Taiwan and South Korea. As per various reports, Netflix has borrowed $1 billion for its global expansion plans.

Allz not well

However, everything is not as rosy as we may think. When the news about Netflix’s India plans were revealed, social media was abuzz with speculations that Netflix may violate Net Neutrality principles. According to various reactions and comments on Reddit, there have been similar instances in Australia and New Zealand, where Netflix has partnered with local ISP called iiNet which has enabled them to offer their services at unfair advantages. At a time, when Netflix is reeling under this crisis, this can be an important ground for consumers to abandon the service.

The Hindu Business Line reports that: “Netflix could enter India through a partnership with a local telecom firm to take advantage of [their] 4G networks

This is the only logical route for the company to take, and it is rooted in precedent. But it also violates net neutrality, and badly at that. Zero-rating harms other companies providing the same category of service, like Google Play, Spuul, Zooq, Ogle, Eros Now, Hotstar, and several others that aspire to provide streamed content. These services rely on an even playing field, and Netflix partnering with a 4G network (most probably Airtel or Reliance Jio) deprives them of that right. It also deprives customers of any other streaming service, as broadband caps are low, and streaming movies and TV shows on mobile networks is unsustainable.”

The company however argues, “We are committed to the principles of strong net neutrality.” and their view too is not unjustifiable as Netflix is known to support Net Neutrality in the US, where they propagated and shared the message of fair Internet. However, an analyst who do not wish to be named said, “When it comes to non-US markets, they completely change behavior.”

Read on: FAQs: Of Free Basics And Net Neutrality

According to reports, Netflix will charge fixed monthly fees from their subscribers, and if they use some of this money to offer faster access of their services, then it may not completely break Net Neutrality principles. But point is Netflix will still be charging for their service in the form of a fixed monthly rental, and if they use a portion for it to pay for the streaming charges, it might not be an outright violation of net neutrality but a concern with the pricing issues.

Pricing pressure

Right now, similar on-demand digital video streaming in India is available from Bigflix (Reliance Communication), Google Play, Youtube, Eros Now, Hungama, Spuul, among others that already makes the competition intense. Besides, Balaji Telefilms, Viacom18 and Ronnie Screwvala’s UDigital are all set to launch their versions of OTT platforms in 2016.

The existing digital video players in India are also racing in the over-the-top (OTT) content and distribution space. Last year, STAR India, the country’s leading TV network, launched Hotstar, Sony Pictures Network India jumped on the bandwagon and launched SonyLiv. But competition is not something Netflix should be worried about. It is the pricing issue that matters.

Most Indian players provide free content, while Netflix is a subscription-based offering. The pricing in India is more or less identical to that in the US, where Netflix’s Internet video streaming subscription rates start at Rs 500 ($7.50) per month. The video-streaming service will also offer two other plans priced at Rs 650 and Rs 800, it announced on its website. Unlike the United States, where millions of users pay for streaming services from Netflix, Amazon and Hulu Plus, Indian users prefer to view free videos. The success of Netflix in the US was driven by the low cost of subscription and more recently, original content. But, it might not be able to replicate the same model in India, believe some.

Online video to boom

Nonetheless, India is a market that cannot be ignored by any video streaming service provider. According to a report by Internet and Mobile Association of India (IAMAI), the number of Indian internet users is set to grow to 462 million by July 2016.

A recent report by consultancy firm Deloitte suggested that Indian users’ monthly spending on digital media will grow by 2.5 times over the next four years. Therefore, Industry watchers hope that Netflix may drive the entire market for streaming services. Like, B Sai Kumar, managing director and founder at U Digital told Business Standard, “All the platforms are currently at a nascent stage. They are acquiring customers, building loyalty among them and a brand for themselves. Revenues will flow in from advertising and sponsorships at this stage. Once critical mass for loyal viewers is reached, I don’t see why a subscription-led model can’t work. Till then, however, advertising will be the staple revenue stream,”

At present, most players have an ad-supported revenue model, with subscription to content contributing a smaller amount to the overall revenue. A hybrid model has evolved where some of the content is available for free, but premium content has to be paid for. As experts also opine Indians will be watching a lot of video content in the coming months and the entry of Netflix will bring more of it to the consumer.