Netflix's Price Game
Anyone who has even a passing interest in the media and entertainment industries understands that OTT is a space that cannot be avoided. It is expected to be the fastest growing media and entertainment segment, accounting for a significant portion of the revenue by the end of the decade. From the fourth highest contributor in 2021, OTT contribution will be the highest next to television in 2030.
Video is booming in India, not only on digital but on television as well. As per the latest CII-BCG report, more users are spending time on television and digital video in 2021 than in 2018,?please see graph1 below.
Graph1: Time spent on various media types
Source: CII – BCG Big Picture 2021 Report
Time spent on digital video jumped almost?70%, while time spent on television grew by 22% in the period. The report also cites that the potential number of SVOD subscriptions in the country will be around?80 million?in 2021 and?100 million?in 2022, a huge jump of?50%?over 2019. Growth in the number of SVOD subscriptions is many-fold, higher than in the US and China. This means India could be one of the attractive destination?for OTT players, especially the global ones that have exhausted their potential in their home country. This presents huge scope for players like Netflix (bright eyes), who are looking to gain subscriber base currently.
So, what is Netflix currently doing in India? Netflix is currently creating the buzz in the market for slashing prices across all of their plans, up to 60% in some case.
Here’s what Netflix subscription plans look like now after the reduction in prices:
Mobile Plan:?The subscription starts at Rs 149 per month instead of Rs 199. This plan allows users to watch their TV shows and movies on a smartphone or tablet. The plan is available for one screen only.
Basic Plan:?The earlier price of Rs. 499 per month has been reduced to Rs. 199. Viewers can watch Netflix content on their smartphone, tablet, computer, or television. The plan is available for one screen only.
Standard Plan: Instead of Rs 649 per month, users can now pay Rs 499 per month.The content can be viewed on smartphones, tablets, computers, or TVs. The plan is available for two screens.
Premium Plan: Users are now required to pay Rs 150 less for the premium plan.It is available at Rs 649 instead of Rs 749. The content can be viewed on four screens, including smartphones, tablets, computers, or TVs.
However, with a steep slash in prices, Netflix plans still look premium to major OTT players like Disney Hotstar and Prime Video.
Graph2: Price comparison across different OTT players
But why has Netflix slashed its price in India??I will discuss all possible reasons for slashing the price in rest of article.
#1 Decline subscriber growth.
Graph3: Netflix’s subscriber YoY growth trends
Netflix subscriber growth has consistently declined since Q2'20, when it gained most as people were put in shelters-in-place. Subscriber growth was especially bad during Q2’21 and Q3’21 due to the higher base as well as intensifying competition. This trend is mirrored in APAC’s subscriber growth too,?please see graph4 below?.
APAC and India are battlegrounds for global OTT players seeking to expand their subscriber bases.Keeping in mind the population, lower internet costs, and increasing internet users, India could be one such market where Netflix can fulfil its subscriber growth ambitions.
Graph 4.Netflix’s subscriber YoY growth trends in APAC
Source: Netflix Quarterly earning reports
We should note that Disney+ is gaining a huge subscriber base, mostly coming from Hotstar in India, which is offered at a much lower cost to the OTT subscriber base in India. And even with price slash, Hotstar still remains at favourable position,?please refer to graph 2.
#2 Market and competition.
The potential SVOD subscription market in India is 100 million in users and growing (a huge market in users' terms). In terms of subscribers,?Disney+ Hotstar had 35.1 million subscribers in June this year (26.3 million?in December 2020), Amazon?Prime Video had 18 million (17 million) and Netflix?4.6 million (4.2 million), according to MPA’s July 2021 report. I am quoting this number to actually paint a picture of how big the Indian market is and how far Netflix has achieved in that pie.
Taking another angle, talking in terms of individual subscribers, we have?84 million?individuals who fall into the middle or above-average income group. These are the subscriber bases that can be potential subscribers for Netflix.?Hence, Netflix has a lot to grab here and competition is already ahead of it in this game. But the subscriber gain for the global giant could only be possible through a price game, especially among value-for-money Indian consumers.
Further to this, the India Watch Report by Hotstar does talk about India’s OTT hotspots and growth, which lies in smaller towns with a population of 1–10 lakhs. Those small towns with lesser disposable income can’t be lured with premium pricing.
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#3 Developed vs. Emerging.
Going beyond the price game, let’s look at one more angle. Are?Indians actually paying less for Netflix service compared to subscribers worldwide? To understand this, I have divided the world market into two groups: Developed and Emerging.
Table1.
Source: Worldbank and https://www.comparitech.com/blog/vpn-privacy/countries-netflix-cost/
So, ratio of cost per month for basic plan over the GDP per capita is highest for India among all key markets globally(here I have assumed GDP per capita as representative of consumer’s paying capacity)
Hence, we can see that Indians are still paying a higher proportion of their total capacity to afford Netflix’s basic plan and is the highest even among emerging markets. This indicates Netflix understands that Indians’ affordability of Netflix is also an issue.
#4 vs. Cable.
Netflix is competing not only with streaming services in the market but also with cable operators. In India, cable costs are too low for the "cord-cutting" trend to happen too soon and on such a large scale as we saw in the US. On average, cable prices in India are $3 per month per household. Netflix aims to keep its basic and mobile plans at a lower level compared to cable prices in the country.
Graph 5. India is fundamentally different from other markets
Source: CII-BCG Big picture 2021 Report
#5 Investor pleasing.
Now we understand all the motives behind Netflix's slashing price(hopefully), but then what Netflix is getting out of the low-value Indian consumers?
"We have observed how subscriber numbers drive the psyche of Wall Street investors. Netflix competitors such as Disney+ Hotstar and Amazon have entered the market with attractive local pricing. This move, in our view, simply reflects Netflix’s intention to expand its addressable market to drive subscription growth, "he told?Deadline."
Investors are pleased with the large subscriber base number because it indicates the company's potential future earnings story. I mean, Indians may have a growing appetite for SVOD content, India may see faster growth in disposable income, and so on…
The latest BCG-CII report too reflects a similar story: India's growing appetite for SVOD OTT services.
Graph 6. Growing appetite for SVOD content
So, What we have in the end?
“But the early data that we are seeing very much supports a positive read on that lens of revenue maximization through these changes.” - Gregory K. Peters, Q4’21 Earning call
Will competition also follow suit??Certainly not. The nearest competitors like Hotstar and Prime Video are placed at much lower prices, so they will likely not reduce their prices and there won’t be any price war. Though Amazon Prime and Hotstar have launched their own mobile-only plan.
In the end, I would like to add that Netflix has everything apart from being pricey to crack the market among value-conscious Indian consumers. It has a great library of popular global content.
May be, Netflix needs Squid Game for India to crack the market.
My other piece on Netflix from the past:
https://www.dhirubhai.net/pulse/netflix-bundling-unbundling-meenakshi-tiwari/
https://www.dhirubhai.net/pulse/why-netflix-shouldnt-avoid-advertising-meenakshi-tiwari/
https://www.dhirubhai.net/pulse/netflix-worth-effort-meenakshi-tiwari/