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Netflix: SVoD entertainment of next gen

Jitender Kumar (Jitender Kumar is based at Department of Business Studies, Sharda University School of Business Studies, Greater Noida, India and Indian Institute of Management, Rohtak)
Ashish Gupta (Ashish Gupta is based at Department of Marketing, Indian Institute of Foreign Trade, New Delhi, India)
Sweta Dixit (Sweta Dixit is based at Department of Human Resources, Sharda University School of Business Studies, Greater Noida, India)
Emerald Emerging Markets Case Studies
ISSN: 2045-0621
Publication date: 15 September 2020

Case summary

Learning outcomes

The case study illustrated strategic, marketing, financial and operational challenges faced by Netflix in India's growing SVoD market. This case is appropriate in courses such as Strategic Management, Business Strategy, Marketing Management and International Marketing for postgraduate MBA students, other graduate-level management programs and undergraduate-level students. The case was developed to raise awareness among students, to understand the complex nature of the technology-driven industry, to survive in the highly competitive market, to set up a company that serves the huge Indian market. This case delves into the dynamics of marketing on the Indian market, characterized by unorganized players such as local cable television; torrent downloads and organized and established players, low digitalization rates, language barriers, low internet penetration, lack of infrastructure, price-sensitive consumers. Due to up-gradation in technology, internet penetration, an increase in smartphone users, and the market has undergone a notable amount of change, due to a lot on new entrants, competitions, substitutes. The case states various obstacles, for a multinational company while entering the market such as India and how they are required to strategize, mold their marketing mix, need to analyze en-cash their strength, overcome their weakness, take maximum advantage of opportunities and modify their strategies to face huge challenges. The specific learning outcome of the case will help students to understand the strategy that multinational companies can adopt to sustain, compete in emerging countries such as India and within that emerging market such as streaming videos on demand (SVoD). This case will help students to understand the importance of internal and external resources, which help multinational companies to make strategies based on these resources. The case study offers learners the opportunity to explore the strategy in a dynamic environment. This case also highlights the critical issues that should be addressed by multinational companies when entering into a foreign market. The case highlights the importance of analyzing the competitive environment in which it’s going to compete and sustain. It can be used to introduce Ansoff’s growth matrix, internal and external factor analysis and porter’s five forces in the delivery of course for both regular and executive programs. The case should be offered in the middle term periods of the course. Additionally, the case could be used in marketing courses to indicate the importance of scanning the business environment in marketing activities for any organization. The case illustrates the strategies that companies can undertake to expand the market, introduce new products, as per the requirement of business environment and concerns linked with innovating approaches to support the organization to satisfy a larger number of price-sensitive consumers from varied backgrounds.

Case overview/synopsis

Netflix has been optimistic about the potential growth of the Indian market. It will grow slowly and gradually and become profitable. The SVoD market in India has been price sensitive. There are no plans for cheaper prices. Netflix had a long way to go. The pricing model of Netflix was a hurdle in its growth, but the future of Netflix in India was bright. There have been numerous challenges in terms of government regulations, pricing structure and an increase in the number of competitive players on the market. Netflix believed that Indian audiences enjoyed “Bollywood” film productions but watched low-quality soap opera content on television. Television audiences were a massive untapped market for their brand of original, exclusively produced content. Can Netflix come up with a marketing and growth strategy, or else they might be looking to lose market share and revenue. Should a new product such as Amazon and MI fire stick be introduced in the existing market like their competitors? Should they enter the existing market with existing products, or should they seek a new market in India, such as the rural market, the Pyramid market, the Tier II market and the City III market? Should they diversify into a new market with new products? How Netflix should plan its market communication if it wants to launch a new product or if it wants to reposition its existing product. Netflix had to rethink its strategies and also needed to address these issues so that they could travel smoothly on Indian roads. High marketing budget and aggressive promotions helped Netflix India to make a profit in its first year.

Complexity academic level

Postgraduate MBA students, other graduate-level management programs and undergraduate-level students.

Supplementary materials

Teaching notes are available for educators only.

Subject code

CSS 11: Strategy.

Keywords

Citation

Kumar, J., Gupta, A. and Dixit, S. (2020), "Netflix: SVoD entertainment of next gen", Emerald Emerging Markets Case Studies, Vol. 10 No. 3. https://doi.org/10.1108/EEMCS-04-2020-0108

Publisher: Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

Introduction

In the November of 2018, a group of enthusiastic marketing students from an eminent B-School of Delhi who had to pursue an internship with a leading consumer research organization were discussing the future of streaming videos on demand (SVoD) with their senior executive Amit Dixit who would be leading and guiding them through this project. They sat there while sipping on their afternoon coffee discussing an article in one of the reputed newspapers of India which said that Netflix's next 100 million subscribers will be from India (Jonnalagadda, 2018). Amit also referred to a leading online publication which opined, Netflix was getting crushed in India (Bhagia, 2018). In their discussions, the group agreed that the SVoD market in India is price sensitive (Bhushan, 2018) but on November 10, 2018, Chief Executive Reed Hastings of Netflix announced that they had no plans for bringing their prices down even in the fiercely competitive Indian market. Some well-researched students were of the opinion that though the Netflix content was bold and mixed (English and Hindi) but it still had a long way to travel. Netflix faced strong competition from Hotstar, which provided streaming videos at low prices and a higher number of regional content videos.

The team decided to initiate a survey of subscribers to know the real picture of SVoD players in general and Netflix in particular. Within a month of the survey on December 11, 2018, CNBC published a video “Why Netflix is struggling in India” (CNBC, 2018) was published online which had more than 1 million views. On January 24, 2019, an article “Why was Netflix struggling in India” was published online. All these recent updates were in line with the findings of the survey conducted. As per the findings, Netflix did not change its pricing model in the Indian market which had resulted in losing its ground. Results were getting stronger when on June 23, 2019, Business today in its article said that Netflix had a way to catch up with rivals in India and the Over the Top (OTT) (OTT: Over the Top, 2020) market was dominated by Hotstar (Rao, 2019) and there was intense competition in the country. Though the future of Netflix in India was bright in terms of revenue, still several significant problems plagued Netflix. During the course of this project, discussions pertaining to the future of Netflix were getting intense and there were lots of questions that arose accompanied with numerous challenges in terms of government regulations, pricing structure and increase in the number of competitive players. Would Netflix be able to build marketing and growth strategy which can prevent them to lose their market share and revenue? Should they introduce a new product such as Amazon and MI fire stick in the existing market? Is there a need to search for a new market in India like the rural market, Bottom of the Pyramid market or the market in Tier II, III and IV cities? Should they also diversify with new products in a new market? How should they plan their market communication to sustain the competition, how can they increase the number of active customers and market share? Netflix had to redesign their marketing, competitive strategies, counter these issues so that they could travel smoothly on Indian roads.

Indian streaming videos on demand market analysis

The Indian SVoD market was the second largest in terms of the subscribers in the TV subscription market in APR (Asia Pacific Region). However, the OTT (over the top) video was an unusual alternative that became the mainstream entertainment destination for internet users (Avia, 2019). As per Statista (Jaganmohan, 2020) in 2015 India had about 199 million smartphone users and by 2019 it reached to 373 million and by 2022 it will reach to 442 million, also India being the second largest online market in the world only behind China with more than 560 million internet users and expected to grow over 650 million by 2023 (Statista, 2020), the market was expected to get intense by the entry of several players such as Amazon, MI, Netflix, etc. In the past six years, the numbers of players in the Indian OTT market had increased from just nine companies in 2012 to 32 in 2018 (BI, 2018). According to a report, “Entertainment goes online” released by BCG (BCG, 2018), the OTT content market in India was at a turning point. There were more than 30 OTT apps and over 80% of the people did not use more than three apps as claimed by the study. It also indicated that there was huge OTT consumption in rural India. Video streaming services market will cross the milestone of US$4.5 to 5bn in India by 2023 (Singh, 2019). There was great potential for existing players (Amazon Prime Video, Hotstar and Netflix).

Research agencies such as Statista also reported that in India, revenue from the SVoD market will be US$239m in 2020 which was expected to grow at (CAGR 2020–2024) 10.4%, which will lead to a market size of US$355m by 2024 (Statista, 2020). SVoD penetration among end-users users in 2020 is at 3.7%. It was estimated to grow to 5.8% by 2024. In India, ARPU (Average Revenue per User) of SVoD amounted to US$3.78 (Statista, 2020) and on average domestic OTT subscription services have been priced at less than US$1 per month [Exhibit 1(a, b, c and d)]. The Boston Consulting Group (BCG) also stated that SVoD had made inroads into the country and would be popularized by moving forward (Singh, 2018). India’s SVOD market will add 25 million subscribers in the coming five years (Hawkes, 2018). Price was the most important factor while deciding regarding video service in India. When global SVoD revenue was compared, India contributed US$116m as compared to US$11,420m of the USA, US$975m of the UK. India had potential where the user penetration of SVoD 3.2% (Statista, 2019) which gave huge scope to SVoD players to enter in the market also India’s video-streaming market. Subscription-supported video streaming had been projected to reach US$816m (Singh, 2018) [Exhibit 2 (a, b and c)].

The history of Netflix

Netflix is a video streaming service provider that has given a monthly subscription opportunity to watch movies from a vast library of films and TV shows. On devices such as smartphones, laptops, tablets and smart TV Netflix could be viewed. The US streaming service and production company Netflix Inc. was founded in 1997 in Los Gatos, CA by Reed Hastings and Marc Randolph. The company's key activity is its user subscription OTT television service, which includes streaming films and TV shows. The viewers can also watch in-house TV programs and produced films (Statista, 2018). As of September 2019, worldwide Netflix had 151 million paid subscriptions, of which 60 million are billed in the USA. More than 6.55 million customers (Netflix, 2020a) have been screened online. It can be streamed across the world other than in certain countries such as Iran, China (local government regulations), North Korea, Syria and Crimea due to US sanctions. It operates in India, Japan, The Netherlands, Brazil, South Korea and other countries. He was a member of the American Motion Picture Association (MPAA). Netflix has come a long way from 1997 to 2019 and reached milestones (Netflix, 2020b) [Exhibit 3]. Netflix was responsible for almost 15% of downlink traffic on the Internet. It also had 26.58% of the global market share across video streaming services. This was the part of the 58% of downstream traffic on the Internet that comes from video streaming. Video streaming had been the highest contributor in the global application category traffic share, with 57.69%. However, As far as global mobile application traffic share in the social mobile network is concerned it contributed 2.4% (Sandvine, 2019). [Exhibit 4 (a, b, c, d and e)]

Netflix’s modus operandi (Sandvine, 2019)

In 1997, Netflix initiated with the digital video disc (DVD) rental business. Subscriptions were the main source of income for Netflix. Access of content was chargeable to subscribers. It continued with the Video on request (VoD) streaming service. With the advent of streaming media, it expanded its market in 2010, however, DVD and Bluray rental business continued. In 2010 it joined Asia, the Caribbean and Latin America. The first Lilyhammer show was released by Netflix in 2012. Since 2012 it had produced and distributed film and TV series actively. Today, through its extensive online library, it provides a huge range of original content. In September 1999, Netflix launched the monthly subscription system. In the beginning of 2000, it ended the single rental trend. It was a leader in the flat rates, unlimited rental terms, late payment and handling and delivery fees business model. In 2000, Netflix had about 3,00,000 subscribers. He used the US Mailing their DVDs via Postal Service. Throughout this period, it lost revenue. Blockbuster wanted to buy Netlfix for US$50m, but Netflix refused the bid. In early 2001, it began to rise. Due to burst of dot com bubble and the attacks of 11-September forced it to cut its workforce by one-third.

DVD sales from different players slowly increased as they were becoming more affordable. The player's US$200. This was a well-known Christmas gift in 2002. In the end, Netflix announced success in the streaming market. So, on 29th May 2002, Netflix launched its initial public offering and sold 5.5m shares at a cost of US$15 per share. It issued 825,000 shares also at the same rate on 14 June 2002. It suffered substantial losses during its first few years. In 2003, Netflix registered its first ever profit. They produced US$6.5m in US$272m in earnings.

Videos on demand, declining DVD sales and global expansion

With the improvement of data speed and reduction of bandwidth costs, Netflix business started growing rapidly. Customers were able to download the movie quickly. Around 35,000 films were made available by 2005. Netflix also delivered 1 million DVDs every day (Raj, 2019). With the introduction of YouTube and video streaming services it also started focusing on streaming concepts. It also introduced a personalized video recommendation system based on customer ratings and reviews. Netflix offered a US$1m reward to the first developer of a video recommendation algorithm. On October 1, 2006, better than its existing algorithm Cinematch (Deoras, 2017). In February 2007, Netflix released its billionth (Uenlue, 2019) DVD. It was time to get out of the main DVD distribution business model. VoD was launched over the internet. Though DVD sales dropped, Netflix grew. The success of Netflix has continued to increase and by June 2009 it was able to offer 12,000 films and TV shows (Weekedstar, 2019).

Subscription fee as revenue source

Netflix's three plans were focused on streaming content quality, namely, basic, standard and premium. If the customers agreed to “basic” the streaming content could be viewed in “standard definition.” In “high definition” the consumer with the standard subscription will view the content. The video can be downloaded into ultra high definition' in the premium subscription. The cost of these projects varied between countries (Netflix, 2020c) [Exhibit 5]. The number of discs out at a time and discs per week per month for DVD rental service will depend on the monthly members membership subscriptions. Two separate services provided by Netflix were DVD rental and streaming membership. It cannot be presented as an income model separately.

Cost center (Pahwa, 2019) [Exhibit 6]

Licensing cost

Netflix pays to acquire the license and quality content. It avoids illegal content on its platform.

Production cost

Netflix started producing original content in 2013 to save licensing costs. These contents involve huge production expenditures. The production of original content as a marketing strategy made Netflix a strong player in this category. Now, it was one of the biggest spenders on original content productions.

Marketing cost

Due to new entrants and existing players (Amazon prime, Hotstar) in the market, Netflix had stiff competition. It had to bail out huge marketing costs. The company had to pay for marketing activities such as advertisements, the commissioning of affiliates and the device partners and suppliers, including the CE, MVPD, mobile service operators and ISP costs. This also includes each new user that comes on board for the first time the first month charge. In 2018, Netflix spent US$1.808m on marketing. Marketing costs also included the company's employees and other marketing expenses (Annual report).

Research and development

Netflix invested heavily in its R&D division especially in personalization algorithms, content valuation, and streaming optimization. It had given an edge over its rivals in the subscription-based business model. Millions of users view content on Netflix in real-time. Netflix had partnered with hundreds of service providers to make its services seamless and congestion-free. It had invested heavily in streaming delivery technology, creating an application for the latest devices and several other infrastructural improvements.

General and administrative cost

Netflix does not only spend generously on its employees’ payroll but also pays for partnership and professional fees with respect to the company’s administration. Netflix incurs many miscellaneous expenses such as payment processing fees, DVD shipping costs and payment for the streaming content library.

The expansion in India

Netflix ventured into the Indian market in January 2016 with pompous promotion campaigns, as part of its global expansion plan (130 countries). Sooner it spread out to the markets such as South Korea, Nigeria and Russia. It registered as a limited liability partnership in India (Sagar Malviya, 2018). It had started streaming content here since 2017. It became profitable in India in its first year of launch. It recorded a net profit of US$28,000 in the year 2017–2018. Netflix declared revenues of US$81m for FY18, as per the record of the Registrar of Companies. It was a cash-rich company with a huge budget for promotional activities. Netflix believes that Indian audiences enjoy lavish ‘Bollywood’ film productions but watch low quality soap operas content on television. Television audiences were a massive untapped market for its brand of original exclusively produced content (Stacey, 2018).

There were 1.6 billion mobile phone subscribers in India. India had around 300 million households. Netflix was slowly strengthening its position in the Indian market and challenging local players such as Hotstar. In India, there were 66 million VOD/OTT users who grew beyond 150 million (Vdocipher, 2018). Netflix believed that now content was king. These streaming platforms have their mobile applications and the companies were focusing upon maximum downloads and maximum viewership (Statista, 2015). High marketing budget and aggressive promotions helped Netflix India to earn profit in its first year. There had been many factors which have encouraged SVoD players to come closer to Indian internet users. High-speed internet services like never before have changed the gear, technological advancements which resulted into the conversion of simple television screens into an internet-enabled smart screen, increase in the usage of smartphones having a small screen where people can watch and listen to various types of videos and music as and when they want. A similar kind of development was witnessed in the entertainment industry also where there was a rise in the video on demand or content on demand by the consumer. This paved the way for global brands such as Netflix and Amazon Prime. The country’s phenomenal Internet growth boosted future expansion and currently streaming video giants. Telecom provider Reliance Jio in the past four years in India did a great job by widening internet accessibility which brought in good times for the content creators.

Behind the rise of Netflix in India since 2016

Indian users are difficult to understand and Netflix had to adapt entirely different strategies. The strategies adopted by Netflix India since 2016 are – content, marketing, promotional offers.

Content

Netflix provided its viewers a wide range of high quality specially selected content that suited its hungry target audience. Although they may felt the need to create regional content to attract rural India.

Marketing

When it comes to marketing, Netflix India is mostly sorted. The brand's main promotional source included websites such as YouTube. Being an internationally recognized brand makes it uncompromising and the brand does not prefer intense advertising. Rather Netflix went for pop up ads, banners, hoarding and other static website ads. Netflix has now been a leading source of sales and revenues of advertisement ads. The brand promotes its original TV series with teasers and trailers on YouTube and strategically places Hoardings in public areas to inform the public about their next production.

Promotional offers

While its monthly package starts from US$6.5 and go as high as Rs. 800, it also gives its new users a while its monthly package starts at US$6.5 and crosses US$10.5, it also offered a monthly free trial plan for its new users, an absolutely enticing deal for Indian consumers. In addition, Netflix India launched and reviewed its US$0.8 weekly schedule for its mobile audience in India (Chandnani, 2019).

Indian competition overview [Exhibit 12]

The Indian OTT space is highly competitive with different players vying for the attention of consumers using different package and business models. OTT content players such as Netflix, Amazon Prime, Voot, Hotstar and others have gained huge popularity in India with their original content and growing regional focus. With the idea of expansion in mind, Netflix came to India in the year 2016 and successfully managed to create a loyal subscriber base of 500 K in its initial 2 years in the country. While Netflix India is now booming than ever due to its commitment to creating high-quality original shows and movies and its strategy to build the notion of binge-watching. Though the primary market of Netflix India remains the high-income consumers from Urban areas, the strategy has fairly worked out for them in getting the growth numbers.

Hotstar

The famous Indian OTT platform began operations in February 2014, currently offering all of Star India's television programs like Indian movies including regional films, sports content in studio (PTI, 2018). Hotstar has a 300 million active user base. It offers TV and movies in eight languages for over 50 thousand hours. Hotstar Premium's Indian user base has risen by 60%, representing 25% of all video streaming subscribers in the industry. It was a market leader with 69.7% of the market share.

Amazon prime

It entered into Indian SVoD market in July 2016. Amazon Prime annual subscription costs Rs. 999. It also has a monthly plan of Rs. 129. Amazon Prime’s video content includes popular content Bollywood movies. Amazon prime held a 5% market in India. Amazon Prime had more than 100 million subscribers worldwide (Hawkes, 2018).

Telecom providers

It includes the telecom OTT players such as Airtel, Vodafone and JIO, etc. The introduction of Reliance Jio changed the video streaming market in India drastically (IANS, 2019). Rural India consumes 65% of video content. with just 40% internet connectivity. Presently, there are around 32 online content and video streaming platforms available in India. This rapidly growing market was expected to reach US$5bn by 2023.

Local cable and direct to home

India had less number of direct to home (DTH) connections than cable TV. Cable TV had a share of 46.5% of TV households. DTH players hold 42.4% market share. The collective shares of both the modes were 88.9% of the lucrative Indian market. According to TRAI, 78% of the cable TV market was controlled by about 15 big multi-system operators (MSOs). Given the attack of digital streaming services, India does not appear to abandon old fashioned TV. As indicated by TRAI, around 15 major MSOs commanded 78% of the digital TV. As per the data Performance Indicator Survey (TRAI’s, 2019), there has been substantial rise in the DTH service in 2019, with the expansion of 4.91 million active subscribers, 72.44 million subscribers with 7 players (Jha, 2019), 84 million rural families watching TV and 99 million urban watches in India (TVP Bureau, 2018).

Free access content

Zee TV networks offer movies, quality TV content and around 90 live channels on its Zee5 platform. Zee networks provide content in 12 languages. The subscription costs about 70 cents a month. However, Zee5 provides free access to Airtel’s users who have taken plans priced at US$7, 25-a-month or more (Lee, 2019). Reliance Jio entered into film and TV streaming with a bang. It also had a tie-up with Balaji Telefilms ALTBalaji to produce exclusive content in the Hindi language, which was widely used in the country. Youtube gets Worldwide Mobile Internet Traffic of 35% and Netflix gets only 15% [Exhibit 4(c)].

Torrent downloads

Pricing had been the biggest challenge. Indian users are reluctant to pay for content yet on Torrent. Users used to go to Torrent for free share and download of the film and TV shows contents (Bloomberg, 2019).

Opportunity ahead in India

India has the second-largest number of internet users out of which approximately 500 million use the internet on smartphones which increased the demand for “video on go.” Low-cost data and higher data to voice ratio (84:16) added to this. This resulted in the rise of original content such as web series and other videos on demand. In 2017, Netflix streaming revenue increased by 36% to over US$11.6bn. They added 24 million new subscribers. Now, Netflix had become the US$100bn club company (Modgil, 2018). The Indian market for VOD estimated around US$700m in the year 2018 and it was expected to touch US$2.7bn in 2023. In terms of time spent on watching videos had increased from 2 min in 2012 to 67 min in 2019 (3,250%) (Exhibit 7). Also, the digital media consumption of India was a meager 16% a lot of markets are yet to be penetrated in India (Exhibit 8). The next 100 million subscribers on Netflix would be from India. India had been a bigger market for the pay wallet when compared with China. The prime reasons behind this growth were the rapid digital penetration and smartphone adoption and access to high-speed internet. Smartphone users in India were expected to reach about 442.5 million in 2022. It increased at a rate of 14.5% in 2018. India being the second largest Smartphone market in the world, it is estimated that Smartphone users will increase to 829 million by 2022. Now, with over 400 million mobile users India is ahead of the USA (Jagmohan, 2019). Internet users in India are at 566 million. Rural India was fueling internet growth. Presently rural India has 251 million internet users and reached 290 million in 2019 (PTI, 2019). India's internet users’ base reached 627 million in 2019. Roughly 97% of customers use their cell phones for internet access. The middle-income progress that had been made in urban center and rural areas was very exciting. India will be a major driver for Netflix’s future growth with the company already benefitting from low internet costs and the expansion of 4G in the country. Netflix offered Hollywood content and supported international credit cards in India; it started accepting local payments and had added a lot of international content and aimed to give Indian filmmakers a voice to the world.

The next 100 million subscribers on Netflix would be from India. With 120 million Netflix subscribers across the world, about 60 million were from the USA. Netflix had been the biggest contributor to download traffic across the world. It is responsible for almost 15% of downlink traffic on the internet. It also had 26.58% of the global market share across video streaming services. This was the part of the 58% of downstream traffic on the internet that comes from video streaming. Web browsing had been the second-highest contributor, with 17.01% of downstream traffic coming from it, gaming third with 7.78% and social media fourth with 5.1% [Exhibit 4(a)].

Challenges in India

Netflix was closely competing with Hotstar, Amazon Prime, Eros Now, Viacom 18 Balaji Telefilms, TVF and Voot, etc. in India. Amazon Prime was becoming popular among Indian users. Almost all the players were offering freemium services. It was posing tough competition for both Amazon Prime and Netflix to capture the market by substantial profit margins. In the past 4 years, 35 video streaming services had been launched in the country and a majority of them were leading TV networks (Munson, 2018). As per the research firm, Jana, Hotstar holds 69.4% of the on-demand local streaming services market in India and Netflix holds just 1.4% of SVoD’s market share in India. Amazon prime video was bigger than Netflix in India. All players were struggling to retain consumers. Consumers are switching platforms quickly. As per one estimate, around 50% of OTT apps were uninstalled within seven days of installation. To increase the user base was highly challenging. Almost all players were trying to be among the top three of the user's attention (Munson, 2018).

Netflix and Amazon were putting their best efforts to win over the India market. India was now the world’s second-largest internet market. With the Reliance Jio penetration, Hotstar noticed that the audiences were looking for vernacular content. Indian firm Times Internet acquired a video app, MX Player for US$140m. MX Player used by 175 million customers. Times internet had planned to turn it into a streaming service (ET Bureau, 2018). Indian production house Shemaroo, global giants such as Facebook and Alibaba are also planning to enter into the local streaming market. Eros Now which had over 100 mn subscribers worldwide intends to make big investments in the country. Netflix and Amazon Prime Video are investing steadily in Indian content. Nonetheless, they face intense competition from emerging domestic players such as Star India's Hotstar Digital Premium – the world's leading streaming network. India’s film and network TV market was posing formidable challenges for newcomers (Hawkes, 2018). ALT Balaji known for its popular TV shows and films had more than 2.5 million customers for its streaming services.

Netflix had its operations in over 190 countries by January 2016. About 126 original series and movies have been released. No other network or cable TV channels have been able to achieve this feat. Netflix’s productions of new content, buying the rights for additional content have led to a debt of US$21.9bn as of September 2017. It further announced to produce new content Netflix will raise another US$2bn in debt (Higgins, 2017). India’s streaming market had been extremely challenging for Netflix and Amazon Prime Video. They were behind local service providers in India. This gap had increased in recent months. Indian internet infrastructure and household income were improving with the growth of the economy. There was a tremendous potential for growth for all the players (Higgins, 2017). The local players have a deeper understanding of the ethos, culture and taste of Indian consumers. They have accession to TV serials, an extensive catalogue of Bollywood movies, reality shows and live sports events (especially cricket, which was extremely popular in the country). Netflix can also create value for its subscribers. Low pricing subscription was posing a barrier in the adoption of internet video services. In the US market, a monthly subscription was priced over US$100. This was appealing to all the service providers. The price point had continuously been less than US$4 for the past two decades in India. Netflix package in India was priced around US$7 (Mukherjee, 2018). Hotstar was charging just ₹199 a month (US$3). The users have access to more than 40 HBO shows at this price (Bloomberg, 2019). Netflix was charging three times more than Hotstar. It was also charging eight times more than Amazon Prime Video. Amazon Prime subscribers do not get all the benefits being offered to its US consumers. Hotstar was the largest video streaming service. It had 75 million subscribers in the country. Viacom 18’s Voot had 22 million users, Amazon Prime had 11 million and Netflix had 5 million active subscribers. Airtel had over 300 million subscribers in the country and the monthly subscription was the same as Netflix. However, only 6% to 8% of subscribers were paying regularly. The majority of subscribers were not going beyond the 30-day trial period (Jonnalagadda, 2018). Netflix's content library was not enough for Indian audiences. Netflix was working its level best to gain mainstream acceptance. Television remains the choice of the masses even in digital times. Netflix has to rethink its strategy if it wants to compete with Amazon Prime Video and Hotstar.

Netflix takes lesser support from advertising. So to fund productions such as Sacred Games, it had been charging Indian subscribers between INR 500 (US$7) and INR 800 a month, roughly what its western subscribers pay. Amazon, when compared, charged INR 129 (US$1.80) per month including streaming for its Prime service. According to IHS Markit, a market research company, Amazon’s streaming service had 610,000 subscribers at the end of 2017 whereas Netflix's had 522,000. Hotstar, the market leader, which was owned by Rupert Murdoch’s 21st Century Fox, had 1.6 million (Jonnalagadda, 2018). Revenue from SVoD had been an increasing trend and had been expected to increase from US$94m in 2017 to US$116m in 2019 and US$135m by the year 2023. However, the revenue growth rate had been declining since 2018. From 2017 to 2018 revenue increased at the rate of 14%, by 2020 the revenue growth rate was expected to grow at 8% and 0.9% by 2023 (Exhibit 9).

SVoD players such as Amazon Prime introduced Fire TV and Firestick with Alexa voice remote in India. The fire stick had several apps through Amazon Appstore, namely, Hotstar, Sonyliv, Voot, Zee5, Netflix. MI had plans to launch the MI box in India. MI box is an android based smart set-top box for television which could be another threat for Netflix in the highly competitive market. Star India, an Indian media conglomerate with a network of 60 channels in eight languages had reached to 9 out of 10 cable and satellite TV homes in India launched a new product in SVoD market i.e. HotStar. Many players of SVoD market such as Hotstar, Voot, Amazon, SonyLiv were in different lines of business like they had TV media channels, or were into telecom businesses such as Jio, Airtel or E-commerce. Following that line, it would be wise for Netflix to decide to either diversify or to introduce something such as Fire TV stick or a setup box for its streaming services. India being world’s second-most populous country i.e. 17% of the world population (1.3 million) Netflix has only been able to capture 11 million active users in India, i.e. 2.08% market share of active users (Exhibit 10). A report by a Bangalore based research and consulting firm (RedSeer Consulting) showed that Hotstar tops the space with over 300 million monthly active users (MAU) compared to 13 million of Amazon Prime video and 11 million for Netflix. Netflix needs aggressive marketing strategies, effective marketing communication to increase their market share and also to increase its active user database.

Government regulations

By 2023 Indian streaming market will reach to US$4.5–5bn, as reported by Boston Consulting Group. This indicates incredible lucrative opportunities for existing platforms, such as Hotstar, Netflix and Amazon Prime Video. The market had immense growth, but major concern was about legal and regulatory tussles that could limit their freedom over time. Hotstar, Netflix and other players, found self regulation as the approach to overcome government regulation with retaining their image of being an online platform that provides users the freedom to enjoy the content as per their tastes and preferences (Jonnalagadda, 2018). Instead of absence of any specific laws in India with respect to the online content regulation, Netflix faced legal issues when a dissent was recorded against its series “Sacred Games.” The dissent affirmed that the series included a scene that offended India’s former Prime Minister late Rajiv Gandhi.

Pricing

Netflix mantra in India: product over pricing.

Indian cable TV players survived 100% support for advertising. It charges a very low entrance fee. Cable costs more in other parts of the world and has advertisement free content. Indian consumers were sensitive to prices. Indian consumers are still unwilling to pay for their content. Netflix charges in India approximately US$7.7–12.35 (INR 500-INR 800), depending on the plan the consumer decided to choose (Jonnalagadda, 2018). It is more than just other services. Netflix concentrates on high quality content. It was compelling for consumers to compare before choosing movies in theatre, DVDs or cable subscriptions. Netflix has now been sensitive to household stories and content. It doesn't want to opt for competition in prices. It is serious about creating and investing exclusive content for this purpose. Netflix had three price ranges in the country, charged INR 499/- for a basic plan (US$6.90). For a standard plan, customers are required to pay INR 649/- (US$9). When subscribers choose the premium scheme, they pay INR 799/-rupees (US$12) (Jonnalagadda, 2018). In India, Netflix had no low-price plan.

At last, Amit and his intern team agreed that with the lower revenue growth on the SVoD market and almost 35 players on the OTT market, and the increasing competition and Hotstar lead the market, Amazon's diversified products, Netflix, have a lower market share, even though market expenditure has been increased. Their market share has not increased as expected, and their rate of net income growth has fallen compared to the previous year [Exhibit 11(a) and 11(b)]. Therefore, if Netflix wants to improve its market share in the Tier II, Tier III towns, Netflix should re-plan its strategy. Netflix with a high premium price cannot capture the market as freemium pricing had captured Hotstar. They need to redesign marketing strategies, competitive strategies so that they can reach the masses, attract more income, gain market share and help them redefine their image.

Note: This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives presented in this case were not necessarily those of Netflix or any of its employees.

Notes

2.

Saha, S. (2019, July 24). Netflix brings Rs 199 per month plan in India: What it offers, how is it different from other plans and more. Retrieved from www.indiatoday.in/:www.indiatoday.in/technology/features/story/netflix-cheap-rs-199-per-month-plan-in-india-what-it-offers-how-is-it-different-from-other-plans-and-more-1572990-2019-07-24

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Figures

Competition Netflix vs Amazon

Figure E1

Competition Netflix vs Amazon

SVoD revenue, no. of users, average revenue per user

Year Exhibit 1(a) Exhibit 1(b) Exhibit 1(c) Exhibit 1(d)
SVoD revenue in US$ million SVoD users in million SVoD penetration in (%) ARPU on SVoD in US$
2017 94 44.6 3.3 2.10
2018 107 47.7 3.5 2.24
2019 116 50.8 3.7 2.28
2020 125 54.3 3.9 2.30
2021 131 58.5 4.2 2.24
2022 134 63.3 4.5 2.12
2023 135 68.9 4.8 1.96

Source: Statista (2019)

Global revenue comparison SVoD, global user penetration

Exhibit 2(a)
Global revenue comparison SVoD
Exhibit 2(b)
Global user penetration
Country Revenue in $Mn Country User penetration in (%)
USA 11,420 Sweden 38.6
China 1,782 USA 38
Japan 1,400 Slovenia 33.4
Germany 980 Norway 30
UK 975 Ireland 28.2
India 116 India 3.2

Source: Statista (2019)

1997 Reed Hastings and Marc Randolph (software executive) co-found Netflix to provide online movie rentals
1998 Launched the first DVD rental and sales site, netflix.com
1999 Debuts a subscription service, offering unlimited DVD rentals for one low monthly price
2000 Introduced a personalized movie recommendation system, used members’ ratings to predict choices for all Netflix members.
2002 Issued IPO (initial public offering) on Nasdaq as “NFLX” with 600,000 members in the USA
2005 The members rise to 4.2 million
2007 Introduced streaming, allowing members to instantly watch their TV shows and movies on their PCs
2008 and 2009 Partners with consumer electronics companies to stream on the Blu-ray disc players, set top boxes (TV), Xbox 360, internet connected TVs, PS3 and other internet connected devices
2010 Got available on the Apple, iPhone, iPad, iPod Touch, the Nintendo Wii and internet connected devices. Launched its service in Canada
2011 Launches throughout the Caribbean and Latin America
2012 Became available in Europe (Ireland, UK and also in the Nordic Countries. Won its first Primetime Emmy Engineering Award
2013 Expanded to the Netherlands. Launched its first slate of original programming including House of Cards, Hemlock Grove, Arrested Development and Orange is the New Black
2014 Launched in six new countries in Europe (Austria, Belgium, France, Germany, Luxembourg and Switzerland). Netflix garners 31 primetime Emmy nominations including outstanding drama series, comedy series and documentary or nonfiction special for “House of Cards,” “Orange is the new black” and “The Square,” respectively. House of Cards won three Primetime Emmy Awards. Netflix was the first internet TV network nominated for the primetime Emmy. Netflix now has over 50 million members globally
2015 Launched in Australia, New Zealand and Japan, with continued expansion across Europe in Italy, Spain and Portugal. The first Original feature film “Beasts of No Nation” is released
2016 Got available Globally. Launched in 130 countries bringing their global entertainment service to 190 total countries Globally. Premiered Stranger Things, which went on to become an acclaimed and award-winning worldwide phenomenon
2017 Won its first Oscar, with The White Helmets for Best Documentary Short Subject. Netflix hits 100 million members globally. Netflix signs producer overall deals with Shonda Rhimes and Jenji Kohan. Premieres BRIGHT, its first tentpole action film, starring Will Smith
2018 Won Oscar for Best Documentary Feature for Icarus. Announced overall deals with Ryan Murphy, Kenya Barris, Jason Bateman. Brought back classic rom-coms including popular films "The Kissing Booth,” "Set it Up,” "Sierra Burgess is a Loser,” "Nappily Ever After and one of Netflix’s most-watched movies of all time, "To All The Boys I’ve Loved Before.” Premieres international originals from Denmark (The Rain), India (Sacred Games), Mexico (La Casa de las Flores) and Spain (La Casa de Papel, Elite). It became the most nominated service at 2018 Primetime and Creative Arts Emmy Awards with 112 nominations. Ties with HBO for most wins taking home 23 accolades for series include Godless, Seven Seconds, GLOW and Queer Eye
2019 Netflix wins four Academy Awards, including Best Director, Best Foreign Language Film and Best Cinematography for “ROMA,“ and Best Documentary Short Subject for “Period. End of Sentence.“ Netflix acquires the StoryBots property, the Emmy, Annie, and Parents’ Choice award-winning children’s media brand created by Gregg and Evan Spiridellis. Netflix releases its first original animated feature film, “Klaus.” Netflix unveils its first international originals from the Middle East (“Jinn”) and Thailand (“The Stranded”). Netflix wins 27 Primetime and Creative Arts Emmy Awards for series including “Black Mirror: Bandersnatch,” “Ozark,” “Queer Eye” and “When They See Us.”

Sources: Netflix (2020). Netflix Timeline- A brief history of the company that revolutionized watching of movies and TV shows. Retrieved 11 April 2020, from https://media.netflix.com/en/about-netflix

(a), Global internet phenomena report/ global application category traffic share, (b) global mobile application traffic share: Web and video traffic (downstream volume of traffic across entire internet), (c) globally mobile internet phenomena report October 2018 (worldwide mobile internet traffic), (d) global mobile application traffic share: the social mobile network and (e) a global video streaming traffic share

Exhibit 4(a) Exhibit 4(b) Exhibit 4(c) Exhibit 4(d) Exhibit 4(e)
Basis (%) Basis (%) Basis (%) Basis (%) Basis (%)
Video streaming 57.69 Netflix 14.97 You Tube 35% Youtube 37.04 Netflix 26.58
Web 17.01 HTTP media stream 13.07 Facebook 20 Facebook 8.37 HTTP media stream 24.40
Gaming 7.78 Youtube 11.35 Netflix 15 Snapchat 8.29 Youtube 21.30
Social 5.10 Raw MPEG-TS 4.39 Instagram 5.71 Raw MPEG-TS 8.04
Market Place 4.61 HPPT (TLS) 4.06 Web Browsing 4.55 Amazon Prime 5.73
File Sharing 2.84 QUIC 3.87 Whatsapp 3.68 Twitch 3.45
Messaging 1.72 Amazon Prime 3.69 Facebook videos 1.56 Facebook videos 3,42
Security 1.41 HTTP download 3.69 Netflix 2.44 OPENload 0.80
Storage 1.41 HTTP 3.22 App store 2.12 Skygo 0.50
Audio Streaming 1.05 Play station download 2.67 Google play 1.90 Hullu 0.43

Source: Sandvine (2019)

Features Basic Standard Premium
Monthly price after free month ends on 8/28/19 US$6.6 US$8.5 US$10.5
HD available No Yes Yes
Ultra HD available No No Yes
Watch on your laptop and TV Yes Yes Yes
Watch on your mobile phone and tablet Yes Yes Yes
Screens you can watch on at the same time 1 2 4
Unlimited films and TV programmes Yes Yes Yes
Cancel at any time Yes Yes Yes
First month free Yes Yes Yes

Source: Netflix (2020)

Netflix revenue since- 2014 (consolidated) (amount in $) (in thousands)

Year Revenue Operating income Net income Global streaming paid memberships Global streaming paid net membership additions Global streaming free trials at end of period
2014 5,504,656 402648.00 266799.00 54476.00 13042.00 2915.00
2015 6,779,511 305826.00 122641.00 70839.00 16363.00 3923.00
2016 8,830,669 379793.00 186678.00 89090.00 18251.00 4706.00
2017 11,692,713 838679.00 558929.00 110644.00 21554.00 6938.00
2018 15,794,341 1605226.00 1211242.00 139259.00 28615.00 9196.00

Sources: Netflix Annual Report (2018); Netflix (2018)

Consolidated operating expenses (amount in $) (in thousands)

Parameter 2018 2017 2016 2018 vs 2017 2017 vs 2016
Technology and development 1,221,814.00 953,710.00 780,232.00 28.00% 22.00%
Revenue percentage 8% 8% 9%    
General administrative 630,294.00 431,043.00 315,663.00 46.00% 37.00%
Revenue percentage 4% 4% 4%    
Interest expense (420,493) (238,204) (150,114) 77% 59%
Revenue percentage (3%) (2%) (2%)    
Interest and other income (expense) 41,725.00 (115,154) 30828.00    
Provision for (benefit from) income taxes 15,216.00 (73,608) 73,829.00    
Marketing expenses 2,369,469 1,436,281 1,097,519 65%  30%

Sources: Netflix Annual Report (2018); Netflix (2018)

Year Time spent viewing video in India(minutes)
2012 2
2013 3
2014 4
2015 7
2016 18
2017 39
2018 52
2019 67

Sources: Jha, L. (2018). Indians spending more time watching online videos. Retrieved 09 April 2020, from: www.livemint.com/Consumer/IbdTyfGeqmLR73zj4zTXBN/Indians-spending-more-time-watching-online-videos.html

Year Revenue growth (%)
2018 14.1
2019 8.7
2020 8
2021 4.8
2022 2.2
2023 0.9

Platform (%)
Amazon Prime Video 1.43
Alt Balaji 0.21
Jio Tv 17.60
Jio Cinema 1.86
Netflix 2.08
Tata sky 0.89
Sony Liv 3.17
Voot 11.76
Hotstar 40.18
Airtel TV 4.59

Source: Statista (2019) and Malik (2018)

Categories Hotstar Netflix Amazon prime video
Price US$2.6 /month US$6.6/month US$6.6/year
Time spent in India (App Annie estimates) 7,886 Mn minutes (Nov 16) 633 Mn Minutes (Nov 16) NA
Languages Hindi, English, Malayalam, Tamil, Bangla, Telugu, Kannada, Gujarati, Marathi English, Bangla, Hindi, Tamil Hindi, English, Tamil, Bangla, Telugu, Marathi
Popular shows Game of Thrones, Modern Family, The Night of Silicon Valley, Divorce The Black Mirror, Stranger Things, The Crown, Narcos, Jessica Jones Transparent, The Grand Tour, Mozart in the Jungle, fear the Walking Dead, The Night Manager

Service Monthly fee Annual fee
Netflix US$6.6–10.5 NA
Amazon Prime US$0.5 US$13.2
Hotstar US$0.5/ 2.6 US$13.2
ALT Balaji US$0.3 US$4
Voot NIL NIL

Source: Choudhary (2016)

Points of Differences Netflix Amazon prime Hotstar
USP Its adaptive streaming using Machine Learning to identify network conditions and modify the video quality up or down based on that
This is to minimize buffering. Dubbing, Closed Captioning, Audio Description available across most content
Ad free content
If Prime subscription the
User gets access to priority delivery of purchases made on Amazon
Access to Prime Music streaming
Closed Captioning and Audio Description available across most content
Offers the best value among all the three services
Library is home of the one of the best movies and TV shows
Subscription also comes with the additional benefits
Owned by Star India, which belongs to The Walt Disney Company
Entire catalog of Disney+ content
Many titles could be localized for the Indian market (dubbed in various regional languages)
Regional content
Have moments of glory when it is about the content quality
Offers access to some of the best past-and-present HBO
Live sporting events
Rates and tariff Only monthly package between US$6.6. to 10.5 US$1.7 per month, US$13.2 p.a. both including access to mobile app Hotstar premium US$13.2 p.a. or US$0.5–3.95 per month. Hotstar VIP US$: 4.8 p.a.
Access No company-exclusive hardware required, app/website/smart TV only
Basic: access to watch on 1 screen at a time in Standard Definition and download videos on 1 phone or tablet
Standard: access to watch on 2 screens at a time. HD available. Download videos on 2 phones or tablets
Premium: access to watch on 4 screens at a time. HD and Ultra HD available. Download videos on 4 phones or tablets
Access through
Website
Amazon Fire TV and Stick
Amazon Prime video app
Hotstar VIP
Access to all the content except Hollywood/ Indian/ international shows and movies
Hotstar Premium
Access to all the content on the platform including Hollywood/ Indian/ international shows and movies, live streaming of sports such as cricket, football, tennis and live news channels
Content can be streamed only on a single screen at a time for all accounts
Service Content can be watched after a monthly fee
Different service for different packages
No tiers based on quality or features. The current plans give all users unlimited access to the entire catalogue of movies and TV shows at all supported resolutions and formats Streams all Indian shows earlier than their actual broadcast and has all the other shows on its platform as well.
Packages based services
Content Licensed old movies, hollywood movies, documentaries, Past TV shows and seasons, award winning original content Larger total library of movies and TV shows, according to a December 2018 report from Reelgood – more than 12,000 movies in fact. Amazon has also been making investments in its own original content Has a lot of regional + international content.
All the star Network programs including the sports programs. It has exclusive rights for HBO produced content in India. It has a lot of collection of movies too
Content delivery Video and audio quality on Netflix is superb. The company has mastered the art of adjusting its level of video compression to match your internet connection speed Video quality is generally very good on Amazon Prime Video Offers the highest video quality full-HD

Source: Created by case authors based on various online articles and reports

Exhibit 1 (a), (b), (c) and (d)

Table E1

Exhibit 2(a) and (b)

Table E2

Exhibit 2(c)

Figure E1

Exhibit 3. Netflix timeline

Table E3

Exhibit 4 (a), (b), (c), (d), (e)

Table E4

Exhibit 5. Netflix subscription fees plan in India

Table E5

Exhibit 6(a) and (b)

Table E6

Table E7

Exhibit 7. Average time spent watching videos in India

Table E8

Exhibit 8. Share of digital in media consumption (2018E) (Hours/week) (Numbers in percentage)

Figure E2

Exhibit 9. SVoD revenue growth

Table E9

Exhibit 10. Market share of active users (%) as on November 2018

Table E10

Exhibit 11 (a) and (b)

Table E11

Table E12

Exhibit 12. Comparison of Netflix and its competitors

Table E12

Acknowledgements

The authors want to thank anonymous reviewers and editors for their constructive comments.

Corresponding author

Ashish Gupta can be contacted at: ashishgupta@iift.edu

About the authors

Jitender Kumar is based at Department of Business Studies, Sharda University School of Business Studies, Greater Noida, India and Indian Institute of Management, Rohtak,

Ashish Gupta is based at Department of Marketing, Indian Institute of Foreign Trade, New Delhi, India.

Sweta Dixit is based at Department of Human Resources, Sharda University School of Business Studies, Greater Noida, India.