Thursday, January 7, 2016

Challenges for #Netflix in #India

Netflix has officially announced its entry into India and 129 other countries.In India Netflix will cost Rs. 500 per month for access on 1 SD screen. For Rs. 650 per month one can watch HD content on 2 screens at a time, and Rs. 800 per month will get 4K content on up to 4 screens simultaneously.

Netflix’s entry to the Indian market was expected later this year and now that they suddenly announced the entry along with 100 other markets, naturally everyone is evaluating the entry strategy of this global OTT giant.

Gaurav Gandhi, COO, Viacom18 Digital Ventures feels that while its really hard to predict adoption rates in today’s digital world, we should look at the 4 key factors that helped Netflix in the big international markets and compare the same with the dynamics of the Indian market –

1. Price Arbitrage: The US cable TV ARPU (Average Revenue Per User) is around USD80 - 100 while Netflix’s subscription rates are in the bracket of USD 8 – 10. That is huge price arbitrage advantage that Netflix and other OTT operators had in the US . The Indian cable tv market has one of the lowest ARPUs in the world. And infact at $4-5, which is the typical arpu of cable in India.  Netflix’s basic subscription plan is virtually double, Even if one takes in the premium HD packs of DTH and Cable cos, they same would at best be at par (with all 300 channels ) with the Netflix entry price.  So there is not really any price advantage or arbitrage when it comes to comparison with cable/DTH.

2. Data costs: When the above pricing is seen in context of high telco data costs (again data costs are referenced to telco voice costs) , it becomes another challenge that the operator would need to overcome.

3.The Delivery Mechanism Play – Globally Netflix consumption is higher via fixed broadband lines (and larger screen viewing at home ). The OTT explosion in India is happening primarily on the mobile  (in fact the entire digital boom is mobile driven in India). So long format consumption at high data costs on mobile is a completely different paradigm for them compared to US.  Infact even the bandwidth on mobile networks is a huge challenge todayThis will change with advent of 4G and fixed line broadband in the coming times, but as we speak it is a challenge to overcome.

4. The Content Conundrum: Netflix has an impressive English content library – both licensed and original. In the Indian context, they would need to go beyond just their English content library – which in Indian context will be considered niche. There lies the challenge – because majority of the premium local IP is owned by broadcasters & studios who have their own OTT play – and many with an AVOD play. Yes, Netflix could create originals, but that will take some time. It will be interesting how Netflix looks at their content strategy in India.