India has a $5 billion digital content market
Here’s how Netflix can dominate it
Netflix in 2019 is a one of the largest players in the entertainment industry. Netflix has full scale video production teams across the world producing some truly high quality content. Though I personally think that their content is great, I’m happy to know that the experts agree with my preference. Netflix productions have won accolades at some of the most prestigious award ceremonies — the Academys, Emmys, Golden Globes and even the Grammys. Netflix’s original content has made its mark on the entertainment world and this is not by accident. Listen to any of long time Content Chief — Ted Sarandos’ talks and the importance of original content to Netflix will become clear to you.
Since Netflix is a “Content First” company and makes big investments in original content, it relies heavily on a continuously growing user subscription base to finance its increasingly large content production budgets and good content in turn drives greater user subscription growth. Therefore a growing user base is crucial to the financial health of the company and the recent turn of events does not look too bright for Netflix.
Netflix’s volatile performance on the stock market and Disney’s entrance into the content streaming market does not help its financial situation. Most recently, Netflix stock fell by 4.5% in April 2019 on account of Disney’s announcement of Disney+.
Netflix cash burn peaked in January 2019 with the long term debt of the company coming in at $12.3 billion, Netflix also stated that it expects a free cash flow deficit of negative $3.5 billion in 2019. It is only logical to assume that these funds are being diverted towards content production. All the more reason for Netflix to maintain sustained subscriber growth figures.
With years of sustained growth back on home turf in the USA, it appears that the American market is showing signs of saturation. According to the Netflix earnings report, 7.9 million of the 9.1 million new Netflix subscribers in 2019 came from international markets. This figure may have influenced Netflix’s strategy pivot towards growing international markets — Asia in particular.
In contrast to the scarce opportunities for growth in the American content streaming market, India’s ongoing internet revolution and increasing appetite for content makes the Indian digital content market extremely lucrative and ripe for growth.
“Netflix’s next 100 million users are from India.”
— Reed Hastings, CEO Netflix
India’s Internet Revolution
India is undergoing a massive phase of internet adoption, primarily driven by improved mobile network infrastructure and inexpensive mobile data tariffs. With only 25% of rural India having access to the internet, double digit growth is expected to continue in rural areas for the next few years. This first generation of internet users is going to play an important role in the consumption of digital media in India. According to a recent BCG report, India’s internet users are projected to reach 650 million by the end of 2023. This double digit growth of internet users is slated to continue on its path of double digit growth in 2019. 97% of all internet users use their mobile phone as one of the devices to access the internet.
Growing appetite for content
India’s entertainment industry has been on a trail of constant growth for the last few years with the TV industry growing 12% from ₹660 billion to ₹740 billion and the movie industry edging out the TV industry slightly with a growth of 12.2% touching ₹174.5 billion.
With high internet bandwidth, it is only consequential that data hungry applications — On demand music streaming, video streaming and downloads will have increased user adoption rates. On average, an Indian spends 6.2 hours consuming online content daily. Spending per month on digital media content is expected to grow by 2.5 times. Only 16% of all media consumed in India is digital, presenting the massive opportunity of an untapped market segment. The youth of the country seem to be leading the charge into the digital domain with 25% of all content consumed by the youth being digital. Strong digital media content growth led video subscription revenue to triple in 2018 peaking at ₹13.4 billion.
The Indian consumer
The revenue from the Indian OTT market $500 million in 2018, of which 82% was from AVOD or advertising revenue and the remaining 18% was from user subscriptions (SVOD). The Indian OTT market is driven by consumer demand and reflects the price conscious nature of Indian consumers.
Though advertising revenue represents a large chunk of overall OTT revenues, spending per month on digital media is expected to grow by 2.5 times by 2020. The burgeoning middle class with larger disposable incomes are expected to drive the increased customer subscriptions.
Netflix in India
Netflix entered the Indian market in January 2016 and has garnered over 500k loyal subscribers as of 2018. Despite the relatively higher subscription rates, region specific content augmenting international content has worked well to increase the paid subscriber count in India. Netflix India’s target audience are high income consumers from primarily urban areas. With Netflix pivoting towards Asia and India in particular, the larger market should be addressed if sustained growth figures are to be maintained.
Indian OTT market
The Over The Top market in India is a rapidly growing at an unprecedented rate. The Indian OTT space is highly competitive with different players vying for the attention of consumers using different packages and business models.
Netflix growth strategy for India
With the entire Netflix strategy for India built on the premise of sustained subscriber growth, here are proposed growth strategies to ensure that subscription growth rates reach the required targets while customer churn is reduced to a minimum.
TVOD — Transactional Video On Demand
Leverage the hugely popular activity of binge watching by offering subscribers the opportunity to purchase a 24 hour binge pass which grants them access to a particular content series for exactly 24 hours.
Content bundles offered to subscribers limit the access of a user to a curated set of content.
Mobile phone only subscription that stream content in limited video quality and stream rate offered at a lower subscription price.
Content
Original content has been Netflix’s strongest tool towards adding the next 100 million user subscriptions.
In order to penetrate rural India, content will have to be tailored to appeal towards different segments & sentiments of rural Indian society.
A number of local OTT players have rapidly scaled their customer base in a short period of time by utilising their keen understanding of Indian entertainment market.
Marketing
Netflix subscriptions can be marketed by positioning the quality & cost of a Netflix subscription in comparison to the cost of alternate entertainment options that offer the same service (movie ticket costs, TV series subscriptions).
The experience of a cinema theatre plays an important role in the entertainment of millions of Indians — marketing the idea of “Bringing the cinema home” will not only capture the mind of the people but suddenly make the idea of a Netflix subscription very affordable since the price of a movie ticket is quantifiable, relatable and comparable.
Conclusion
The subscription growth figures required to support Netflix’s content first strategy can be achieved by looking towards growing markets with a special emphasis on India.
Rapid rates of internet penetration, inexpensive high speed mobile data and India’s growing appetite for digital content make the market highly conducive to digital content streaming services.
Netflix has carved a niche audience of urban subscribers but in order to ensure that growth figures do not plateau, effective growth strategies need to be implemented to tap into the user base from tier 2 & tier 3 cities.
Subscriber growth can be achieved by implementing effective strategies for subscription models, content and marketing.
Originally published at https://bit.ly/2HYPAfW
