Battle of subscribers: Netflix slows down in race with Disney+ Hotstar

Can the brand, perceived as elitist, play the volume game in India?

Has Netflix Inc dropped the ball?
 
Media analysts were asking the question soon after the $25 billion streaming giant’s earnings call last week. The company behind shows like The Crown, The Queen’s Gambit and Trapped is the world’s largest pay-driven OTT at 210 million subscribers. It had missed its subscriber acquisition target in the first quarter by two million. Did Disney+, which has raced to 100 million subscribers in a year, have anything to do with it? Has Netflix finally found its match?
 
Some of the questioning spill­ed into India. After five years and an estimated Rs 1,500 crore in revenues, Netflix controls a huge 45 per cent of the subscription video business. But on the number of subscribers, Disney+ Hotstar (26 million) and Amazon Prime Vid­eo (17 million) look way more im­pressive than Netflix’s 4.6 million. All of them were laun­c­hed or ca­me to India around 2015-2016. In 2018, Netflix co-CEO Reed Hastings had declared that the firm’s next 100 million subscribers would come from India. “In the context of their ambition, the number loo­ks small,” says a senior industry official.
 
“Five years since its launch, with its adjusted price for India and content investment push, the service should be clocking higher numbers,” says Mihir Shah, vice president, Media Partners Asia (MPA). He has a point. Over 400 million Indians watch streaming video. From about Rs 9,600 crore in 2019, OTT rose to Rs 10,700 crore in revenues by 2020, according to MPA. This growth was led by subscription, while advertising fell. India now has an impressive 58 million OTT subscribers. MPA predicts this will go to 200 million by 2025. Why then doesn’t Netflix have a larger share of this huge market? Has it chosen to play the value game only?
 
When contacted by Business Standard for this article, the company declined to comment. “The­re is no single answer to whether Netflix is doing well in India or not,” says Constantinos Papavas­silopoulos, associate dire­c­tor, co­n­sumer research (and In­dia ex­pert) at UK-based Omdia. He po­ints to the first of the two reasons Netflix’s relationship with India goes way beyond simple growth compulsions: “India was the first market they launched the Rs 199 mobile only plan in. It was then rolled out in other countries. In March 2021 they tested an HD (high definition) plan for Rs 299. India is a test bed for Netflix.”  
 
Going local
 
Though it had some big subscri­ber gains during the lockdown last year, Netflix is still seen as an elitist brand — on both content and pricing. That is strange given that it broke through in the US by offering streaming at $8-12 agai­nst cable’s $40-60 a month. In India, its price ranges from Rs 199 to Rs 799 a month against, say, Rs 150-200 for cable TV. One industry insider analyses: “Netflix’s average revenue per user is close to Rs 500-600 per month or about Rs 6,000 a year. For Amazon Prime Video, it is Rs 999 a year, Disney, SonyLIV, everything is roughly in the same range. Their (Netflix’s) strength is international content. The number of people who consume international content is fi­nite. The first scale up to 3-4.5 million was easy. As you go deeper, at Rs 6,000 a year, the value proposition just doesn’t work.”
 
To grow from here, Netflix will need to localise in a way that Ama­zon Prime Video has done. You could argue that Prime is about shopping, that its numbers come from shoppers logging in. But “Amazon Prime Video has both depth and width of content (across regional languages). So many of its shows are in seasons 3 and 4. How many franchises are there from Netflix?” asks Shah.
 
Prime Video shows like Mirza­pur and Paatal Lok or films such as Soorarai Pottru and Drishyam 2 are part of conversations. “After Sacred Games which Netflix show has been a conversation point?” asks the insider. That seems un­fair. Since its entry into India in 2016, Netflix has announced over 90 productions across films, ser­ies, unscripted and documentaries. Many of these, such as the whimsical Ludo or the surreal AK vs AK have won critical acclaim. Papavassilopoulos points to the $400 million that Netflix has co­m­mitted to content production in India. “Indian content has global appeal and it travels well,” says he. That makes India a critical hub for sourcing programm­ing, the second reason Netflix’s India connection is different. The pandemic in India and how long it wi­ll affect content production was a point of concern in the earnings call.
 
That brings us to the key issue of content. Netflix’s gaze is rather Western. Its choice of programming, the look and feel of it is influenced by the international market. More than pricing, cont­ent is what Netflix needs to fix, say analysts. As Shah puts it: “You have three bullets: Pricing, partnership and content. The first two have been fired, the third one has to fire now.”

Disney+ vs Netflix
 
Theirs was a battle everyone was waiting for. When the $65-billion Walt Disney Company decided to push ahead with streaming in 2020, all eyes were on the company that had birthed this business: Netflix. “Our lar­gest competitor for TV viewing time is linear TV. Our second-largest is YouTube. And, Disney is considerably smaller, but we're sort of in the mi­d­dle of the pack,” said Reed Hastings, co-founder, chairman, pres­ident and co-CEO of Netflix. Hastings has maintained that Netflix’s fight is with the broader array of things that consumers want to spend time on, inclu­ding sleep. While Netflix has probably watched Disney+’s succ­ess warily, it remains focused on the big picture. That is why a 2 million fall in consumer acquisitions, soon after a record 40 million gain in 2020, is not worrying. Analysts, in Europe, agree. “The first quarter of 2021 is driven by Covid not compe­tition. Disney+ and Netflix are complemen­tary services,” reckons Tony Gunnarsson, principal ana­lyst, TV, video and advertising at the UK-based Omdia.In 2019, Disn­ey+ was trading at just over $150 a share, while Netflix was at just over $340. Earlier this week Disney was trading at a high of $190 against $500-plus for Netflix.