Netflix is loving India but isn’t sure if cheaper, mobile-only plans are the way to go
Netflix just added 10 million new subscribers in three months. Its local content across regions is appealing to global audiences. Now, if it could just find the sweet spot for pricing in India…Suma Ramachandran
Netflix is excited with how its focus on local language content is paying off across the world, including in India. That’s because these original shows, with their authentic local flavour, are popular not just in the regions they’re made in but are being watched in other countries as well.
Speaking during the earnings call after announcing Q1 2019 results earlier this week, Chief Content Officer Ted Sarandos talked about how their local content was growing global, saying, “We've kept one strict principle around it…these shows have to be very locally relevant…the best way to make global stories is to make them incredibly, authentically local.”
It’s a bet that’s translating well into numbers too. Netflix surprised itself with 9.6 million new paid subscribers in the first quarter, up 16 percent from the year-ago period and 700,000 more than the company expected. According to the company’s letter to shareholders, this takes its total subscriber base to 148.9 million worldwide. Netflix does not provide a region-wise breakdown of where its subscribers are located.
India remains a key emerging market for the global entertainment powerhouse, one that CEO Reed Hastings has often said will account for at least 100 million subscribers. As Sarandos put it,
“We're seeing the investment in local language content in India pay back in the form of excitement, member growth, and hours growth that's encouraging us to keep going.
“…We're super encouraged out of the gate with Love Per Square Foot and Sacred Games, where not only do we get a lot of viewing in India, but it just took an incredible position in the zeitgeist where people were talking about and writing about the excitement of a show,” he added.
Encouraging demand with supply…
Earlier in the week, Netflix had announced 10 more original films to be streamed by 2020. That takes the number of upcoming Netflix Indian originals up to 15. This includes titles announced last November. It has also tapped into India's best creative resources, including Shah Rukh Khan's Red Chillies Entertainment that will be producing Class of '83 (the story of a morally upright policeman-turned-trainer).
Other titles lined up are Ghost Stories that reunites directors Zoya Akhtar, Karan Johar, Dibakar Banerjee, and Anurag Kashyap of Lust Stories. There’s also House Arrest, the screen adaptation of Serious Men, and Guilty, produced by Karan Johar's Dharmatic Entertainment, and others.
But in India, it’s never just about the content. Netflix knows that it is a more expensive option compared to other streaming providers like Hotstar and Amazon Prime Video, and needs to sweeten the deal for a cost-conscious market. So, it’s trying a bunch of different ways to get subscribers to try it out.
Partnerships with telecom companies have been one way. As we wrote earlier this year, much of the growth witnessed by Netflix, Amazon Prime Video, Eros Now, and others came from content distribution tie-ups between them, telecom operators, and device manufacturers.
On its part, Netflix signed up with telecom providers Airtel and Vodafone to provide discounted plans to their post-paid subscribers. Describing its partnership with Airtel as working “quite well”, Chief Product Officer Greg Peters said on the earnings call,
“We can use different go-to-market mechanisms that any consumers aren't familiar with to make it easy for them to just sign up for the service and try it out.”
One example of this is the mobile-only weekly and monthly plans that Netflix is reportedly testing out in India for as little as Rs 65 and Rs 250, respectively.
Will 'sachetisation' work for Netflix?
While Netflix wants to make its content accessible to more people, Peters said they weren’t sure if this was the right model.
“We'll see what the right mix of features is, because there is a bit of a magic to try and get the right set of features at the right price point in a way that the consumer can relate to…so we've got more work to go do there, but it's something we're highly focused on.”
The right mix is critical because original content is expensive. According to a Yahoo Finance report, BMO Capital Markets analyst Daniel Salmon expects Netflix to spend $15 billion on original content this year. The company itself has guided for over $3.5 billion in free cash outflow this year.
While Netflix figures out the right pricing for India and other emerging markets, this quarter’s figures remain encouraging: revenue of $4.52 billion (up 22 percent) and a profit of $344 million (up 19 percent). And despite increasing the price of subscription plans in many markets, it expects to gain five million new subscribers in the current quarter.