Netflix Market Expansion Recommendations: A Targeted Approach to the U.S. and India

By: Catherine Brennan; Chase Collins; Prerit Mahajan; Meral Pasha; Micaela Sadati; Rebecca Sadwick Shaddix

2020 Timeline for US Market

As part of a Marketing Strategy course through Harvard Business School, we analyzed Netflix’s current market position and objectives. The following is a summary of the key conclusions and recommendations for Netflix’s continued market penetration and expansion, identifying India as a likely secondary target expansion market due to its volume of internet users with disposable income.

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Netflix is the video streaming incumbent, with the first at-scale mover advantage. Facing an increasingly saturated marketplace of both consolidation of licensing content and the threat of new market entrants, Netflix reinvests into studio relations and developing original content for cashflow loses of $3B annually. It is facing increasingly tightening margins in the U.S. market for streaming content, as bidding wars and studio partnerships shift. With a global market share of 62.6%, Netflix comprises only 5% of the Indian market of video streaming, which is the second fastest-growing international internet user market (behind mainland China, which censors Netflix for political reasons). Strong brand equity, proprietary machine learning algorithm with millions of users’ data, and award-winning original content are the foundational advantages that will allow Netflix to reinvest into market penetration and market development strategies.

As the leading on-demand streaming service in the United States, Netflix has created a strong brand identity by positioning itself as affordable, convenient and with the largest personalized viewing content. We recommend that Netflix: in the US and India market would be to:

• Focus on producing ‘Netflix Originals’ for ages 35–44 in the US
• Capture the growing India market by acquiring and producing content in multiple Indian languages, and focusing on a mobile-first experience in India.

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India comprises the second fastest-growing number of Internet users, behind China, where Netflix is currently banned due to political sanctions. Thus, India is a prime global market focus, after maintaining preeminence in the U.S.

Netflix’s first-mover advantage alone doesn’t suffice to maintain an audience in the increasingly complex video content streaming ecosystem, but the scope of its operations, breadth of licensed and original content, and ease of use of its interface and integrations are core to its brand equity. This has led to its revenue CAGR of 29 percent from 2013–2018; and net income increase to $1.2B in 2018. The SVOD industry had around 961 million users in 2017, which is expected to increase to 1,239 million subscribers by 2023, a four percent Compounded Annual Growth Rate (CAGR). The revenue of the SVOD industry is expected to grow from $19.9 billion in 2017 to $28.2 billion by 2023, a six percent CAGR.

With its most recent U.S. price increase in Q3 2019, Netflix saw only 0.1% subscriber attrition, and revenue increase of 22% in 2019. Users are becoming slightly more price sensitive with the entrance of lower-cost streaming competitors, so there is not likely to be another price increase in 2020.

Critical Issues

United States: Maintaining new subscriber growth with increasing competition is Netflix’s primary issue in the United States. Hulu’s introductory basic streaming plan is $5.99 a month and Disney+ recently launched at $6.99 a month, where Netflix’s basic plan recently increased to $8.99 a month. This price match’s Amazon’s monthly plan, but Amazon Prime members enjoy a basic plan included in their membership. Amazon Prime currently has 100M subscribers, about 60% of whom use the service as part of their Amazon Prime eCommerce membership. New subscribers pay a premium even for the basic plan to join the Netflix platform.

Another issue Netflix is facing is the rising content costs. Netflix paid $100 million, up from $30 million previously, to renew its licensing of “Friends.” Netflix is planning to spend up to $15 billion on content development in 2020.

India: In India, the lack of non-English content is a primary concern for Netflix as it continues penetrating that market. Netflix’s largest competitors in India are Hotstar and Amazon; both offer more Indian content than Netflix does in addition to being the same or lower cost (Appendix F).

Another concern for Netflix, as it focuses on expanding in India, is the low margin that results from this expansion. India’s mobile-only subscription plan is 199 rupees ($2.76) a month, even though this is lower than the US markets it is still seen as a price that targets only the very educated. It is estimated that Netflix has between four and six million customers in India, and a goal of 100 million subscribers.

Marketing Goals and Objectives

United States

Goal: To develop more “original content” appealing to the age group 35–44 in the U.S market by 2021.

Objective: Increase subscription by 60 percent in the U.S. age group 35–44 by 2021.

Netflix subscribers in the U.S. has an estimated 60M paid subscribers in 2019. The chosen target market is the age group of 35–44 as it is the largest growing segment by 24 percent as per available data from 2017. Projected growth of 60 percent makes this target market for the U.S. very compelling. Additionally, this target market is generalized for having children and “Netflix is the best streaming option for children”.

India

Goal: Acquire and create Netflix content appealing to the India market by 2021.

Objective: Increase stream base from 4.1M to 100M in India by 2021. India has over four times the population of the U.S. and it is growing at a faster rate. The number of internet users in India as of 2019 is 525M. It is projected to increase to 601M internet users by 2021. Considering that the total population in the U.S. is 327M this is a very attractive market.

Marketing Strategies to Create Value

United States: Netflix has adopted a market penetration model in the U.S., relying on its breadth of content and ease of use, a product differentiation strategy, that secures and retains subscribers. Its points of differentiation include its brand and first mover status as well as its selection of movies, content scope, and scale of operation. The pricing of the subscription as well as the content (both original and licensed) are at points of parity within the market. According to Nielsen data compiled for the Wall Street Journal earlier this year, 40 percent of user time on Netflix in 2018 was spent watching licensed programs belonging to Disney, NBC Universal, and Warner Media.

The market for digital entertainment is vast. In order to capitalize on a certain market, we propose Netflix focus its market penetration strategy in the U.S. on adults ages 35–44. According to Civic Science, this is the fastest-growing segment of age groups. Netflix saw a 9 percent increase in users in this demographic in a 2-year time period. It is important to continue capitalizing on this growth. In addition, around 80 percent of women aged 35–44 have children.

Netflix’s continued investment in educational and programs for children make this an important market to focus on. Netflix recently added the “Kids” tab on the login screen, which is a huge bonus for families as it separates the content completely, promoting its superior user experience.

India: Netflix only accounts for 5 percent of the video streaming market across India as of November 2019; that too at a higher price point than most competitors, netnography research shows the consumer price distaste. Netflix should adopt a product development strategy in India through its mobile first platform to differentiate itself in the market.

The typical digital Indian consumer in 2030 is likely to speak English as a second language, strictly depends on his or her mobile phone, originates from a rural area, and is increasingly willing to pay for content online.” It will be important to target the digital enthusiasts in India over the next decade. This market in particular is expected to grow from 190M users to 370M in 2025 to 530M in 2030. The next billion users from India “may not move to secondary or tertiary devices like tablets and laptops. They are not necessarily mobile first, but mobile only as a user group.”

Netflix has a track record of innovative corporate leadership and effectiveness. With strong market understanding and a history of operational excellence and on-screen talent, Netflix is poised to remain a preeminent player in the streaming wars — possibly one of the few consolidating survivors by 2030.