Can Netflix win customers in India?

The company has taken a subscription-only route, but many feel its pricing strategy is not right for the country's cost-conscious consumers

From the 2016 edition of the Consumer Electronics Show in Las Vegas came a gift for India's movie buffs. On January 6, Netflix CEO Reed Hastings announced at the show that he planned to launch his company's video streaming service in 130 countries. The announcement was synced with the launch; so, as Indians woke up on January 7, Netflix's website had gone live in the country as well as in several others.

NETFLIX’S DATA PLAN
Netflix has a flexible data plan for India

0.5 Megabits per second
Minimum broadband connection speed

1.5 Megabits per second
Recommended broadband connection speed

3.0 Megabits per second

Recommended for DVD quality 5.0 Megabits per second

Recommended for HD quality 20 Megabits per second
Recommended for 4K streaming
Given the breadth and depth of Netflix's library of TV series and movies, local broadcasters and over-the-top players have reasons to be worried. Indian OTT players, even as they up their ante on content, may find it hard to match Netflix's collection of Hollywood movies.

Netflix's India strategy is focused on building on this strength. It is the first OTT platform in the country to have a subscription-only model. Currently, Indian OTT platforms either offer content for free or operate on a 'freemium' model, where only select content (usually movies) is behind a paywall.

Netflix's subscription model offers tiered pricing, starting at Rs 500 a month for a basic pack, Rs 650 for a standard pack and Rs 800 for a premium pack. The higher priced packs offer HD and ultra HD content and come with multi-user features.

The basic plan allows one person to stream TV series and movies from Netflix in standard definition. The standard plan extends this to two people at the same time and in high definition, whereas the premium plan allows four people to stream series and movies simultaneously.

Additionally, in the premium package, select titles are also available in UHD 4K to those with UHD compatible devices.

"We try to keep prices around the world fairly consistent. New markets are priced starting at $7.99 per month or the local currency equivalent," says the company.

While the pricing is in line with Netflix's global strategy, it may not necessarily be right for India. In the US, where Netflix launched its content via OTT, it had a significant value proposition to offer compared with cable subscription rates. In India, it is priced higher than the average cable revenue per user.

"The US cable TV ARPU (average revenue per user) ranges from $60 to $100, while Netflix's subscription rates are in the bracket of $8-12. That is a noticeable price arbitrage advantage," says Gaurav Gandhi, COO, Viacom18 Digital Ventures.

The Indian cable TV market has one of the lowest ARPUs worldwide. "Netflix's basic subscription plan is on a par with the premium cable and direct-to-home packs. Combined with high data costs in India, this global advantage looks difficult to adapt to the Indian market," adds Gandhi.

Hurdles on the way
There are other challenges too. The growing call for net neutrality could come in the way of Netflix's pricing strategy. "Public opinion seems to be in favour of net neutrality and every streaming service provider will have a level playing field; this price point may become a hindrance to Netflix's growth in India," says Uday Reddy, CEO and founder of YuPPTV, an Indian online video streaming platform that offers services starting at Rs 99 a month.

There is also the issue of mindset that Netflix may have to contend with. Indian consumers are not in the habit of paying for content online. However, many feel Netflix could help change that. NP Singh, CEO, Sony Pictures Network India (earlier called Multi Screen Media India), believes Netflix's entry may help Indian players push the envelope in terms of subscription to online content platforms. "While they may not be able to charge for services starting at Rs 500, there may be a window between the current tariff starting at Rs 99 and Netflix's price points that Indian players can exploit," he adds.

On the content front, Netflix's strategy for now is focused on what it is best at: Hollywood movies. While globally it has taken to heart the importance of local content, in India, it is still work in progress.

"There is a limited amount of local content available at launch in some countries. We will add more as the service grows in popularity and we better understand what our members want to watch in each region," says the company.

To this end, Netflix says it is looking for talented people with a strong track record and a passion for storytelling. "We're already making series and films in Brazil, Canada, Colombia, France, Japan, Italy, Mexico and the UK, and are always on the lookout for new and compelling projects that would appeal to a global audience," the company explains.

Many feel acquiring rights to local content may not be easy for Netflix, given that India has different dynamics compared with global markets. "Most of the popular content here is owned by broadcasters and producers who already have or are coming up with their own OTT platforms," says Gandhi. "Indians savour diversity in content, but the crucial sports and regional content pieces are missing from Netflix's current portfolio."

Viacom 18 is set to launch its OTT platform later this year, while Star India (hotstar), Sony Pictures (Sony Liv) and Zee (Ditto) are already present in the space.

Netflix's strategy, however, does address some of the peculiarities of the local market. For example, its service automatically adapts the data rate of the video stream to meet the bandwidth available to a user (see Netflix's data plan).

Whether or not Netflix succeeds in making consumers sign up for its service remains to be seen, but with its flexible approach to acquiring customers, it has demonstrated its intent for the country.