Netflix: Leaving TV in a fix?

The curious thing about revolution is that very often, when you’re living through them, it’s hard to acknowledge just how colossal the changes truly are.  During a period of unparalleled innovation, Henry Ford developed the moving assembly line and revolutionized the automobile industry, the same role was played by Apple in smartphone segment, Sony in audio and video segment, Facebook in social media and Tesla in electric vehicles. If we look at the things common across these companies, they all revolutionized their particular industry. Is this turn of television industry to undergo a similar revolution? We’re seeing it take place in front of our very own eyes; in our homes, in our lives, as we travel, while we entertain our kids, as we work.  The OTT revolution has well and truly arrived and is drastically changing the way we consume video content.

 

OTT or over the top provides streaming services and video content via the internet, and is aiming to replace the household cable and satellite connections. Power to the user provided by OTT to watch what they want when they want, can be sensed by the rate at which they are replacing the cable and satellite connections. Netflix, the video streaming service, has been the most prolific catalyst in this transition. Netflix generates its revenue primarily from its subscription system. It has DVD-by-mail business only in US which generated $ 80 million in profits for last quarter of year 2015. [9] United states form the core of the business of Netflix and is its most important market with highest number of subscribers. Netflix is leader in the digital content marketspace and the two other competitors Amazon prime and Hulu plus comes distant second and third respectively. There are total of 52 million subscribers of Netflix in the US. [8] Out of which 37 percent consumers stated that they streamed content from Netflix on a weekly basis. Netflix is going strong in the US with growth projections of more than seven billion dollars by 2020. [6]

 

Since 2010 Netflix has adopted aggressive strategy after they saw not much expansion scope in domestic US market. They announced to expand in more than 200 countries specifically to countries which has better internet penetration. [1] Initially they adopted risk free business model wherein they offered limited period offers. And kept open doors for smooth exit from new market. It used data gained in initial streamed videos to create more region specific content that took in account subscriber behaviour of given market. It also undertook exclusive creation of new content and licensing of same. Like for Japanese market it tied up with local agency “yoshimoto kogyo” to create content specific to Japanese likes and kept limited time period streaming rights of content with itself. [9]

 

The aggressive way which Netflix has taken can be ascertained just by the fact that in 2015 it announced to open up its services in more 130 countries, taking count of countries in which Netflix streamed to 190. And by this, expect countries on which US government imposed sanctions and countries which are highly regulated like china it has entered in maximum no of countries.

 

 

 

 

 

Being able to expand its presence in more than 190 countries though Netflix captured large market but its content was only available in 20 languages and as per fortunes survey on ‘Netflix India market’ in India only 5-7 percent of population watches English content market penetration opportunities was less. Also to make it available its US based content to international audience it had to break many norms, which made only limited Netflix content available for international market. And for creating local content Netflix had to invest a lot in local content creation.
Considering Indian Scenario, where market with its growing GDP of 7.1%, emerging middle class and fastest growing smartphone market, the world over, it become among the three largest mobile phone market of Netflix. Also According to Deccan chronicles article on ‘India outshines USA in net usage and becomes second largest internet market’, India is considered to be one of the strongest internet markets in the world with a growth rate of 40% YoY. With the viewership of linear TV declining over time, Internet TV is seen as the future of India in about 10-20 years with a view of high untapped potential. To reap the benefits of these lucrative opportunities, Netflix expanded into India with a view of further increasing its customer base of 42 million.

 

According to a comment by Hastings, the co-founder of the company, he offered in an interview that the next 100 million customers of Netflix will be from India. With the large telecommunication companies pumping in money into the sector, India has around 300 million internet customers with some or the other kind of internet connectivity. Apart from this, with the already saturated US market, growth in Latin America and Europe treading its path, options in China becoming myopic and large companies like Amazon and Alibaba looking for their share of India’s growth prospects, India has come forward as a high priority market for Netflix. Today, ownership has been replaced by access rights, downloads have been replaced by viewership and full paid pricey model has been replaced by small price subscription based model. This change in the behaviour of the consumers has led to a huge change in their consumption patterns of online content.
Catering to changing behaviours Last year, the Indian video streaming market witnessed a boom with the full-fledged launch of MNC’s like Netflix and Amazon Prime alongside Indian companies like Sony Liv, Hotstar, Voot, etc. Netflix however were late in entering the market, needing them to play catch-up with Amazon. Amazon currently has its target to hook the Indian consumers in the complete package of the Amazon Online Ecosystem, ready to absorb losses in the process as well.
On the other hand, Netflix offers premium quality shows with high video quality which in turn leads to an increased package cost. This strategy of Netflix targets the elite sector of the Indian market which is just a tiny portion of the available market potential. If Netflix continues with this strategy, it is likely to miss out on capturing this wide open Indian market, of which Tier -2 and Tier-3 cities are going to be a major portion. The low disposable income in this sector gives an advantage to rivals like Amazon, who have priced their product at quite low amounts. The high pricing leads to Netflix having the upper hand in overall revenue even though they trail in the market share. Even if the income levels are high, Indian consumers are less likely to pay due to availability of pirated content in the market. Also, Netflix has bulk amount of content which is alien to the Indian audience, and they lack regional content. Whereas Amazon on the other hand, focuses more on regional content targeting the local audience specifically. Amazon launched its first Indian series in July of 2017, and have more than a dozen regional shows in the pipeline. Within Netflix’s foreign content too, only a limited amount is available to the Indian audiences due to reasons such as passing through the Censor Board. The recently released ‘Sacred Games’ however suggests that Netflix is trying to focus on more regional content, like its counterparts in the Indian market. If Netflix wants to dominate the Indian industry like it has done in USA, it needs to convince the with more regional contents to consumers that OTT is a replacement to the much-loved television, and not just a complementary act. Indian market with large no of OTT offerings and cheap rate internet availability is surely heading for television industry revolution, but it is remains to be seen will it be fixed by Netflix or someone else?

 

 

 

 

Authors:

Dhruv Gandhi                  B18082

Himanshu Singh             B18086

Neil Fernandes               B18094

Piyush Chopda                B18097

Rishabh Modi                  B18102

Vaibhav Gupta                B18118

 

 

 

 

References:

 

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https://yourstory.com/2018/01/hotstar-winning-video-streaming-battle-now-netflix-plays-catch/

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https://yourstory.com/2017/11/subscription-video-streaming-netflix/

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https://inc42.com/buzz/amazon-prime-up-game-indian-video-battle-add-more-regional-content/

  1. Apple Music, Netflix, and Amazon struggle in India’s streaming market | VentureBeat. (n.d.). Retrieved October 2, 2018, from

https://venturebeat.com/2018/06/01/apple-music-netflix-and-amazon-struggle-in-indias-streaming-market/

  1. India second largest Internet market, outshines US in net usage. (n.d.). Retrieved October 2, 2018, from

https://www.deccanchronicle.com/technology/in-other-news/030616/india-outshines-usa-in-net-usage-becomes-second-largest-internet-market.html

  1. Netflix to launch in India next year, a report says | Fortune. (n.d.). Retrieved October 2, 2018, from

http://fortune.com/2015/06/25/netflix-india-internet/

  1. Netflix: International Expansion | Richard Ivey School of Business Foundation. Retrieved November, 2016 from

https://www.uni-erfurt.de/fileadmin/public-docs/Betriebswirtschaftslehre/Teil_9_Netflix__Case_Study___Strat_Man_II_B_UEb_WS_17_18.pdf

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