With Netflix mobile-only plan in play, Social Samosa delves deeper into its implications. Is the move enough to help the OTT player stay afloat? From a cost of production and operational cost point of view, is a INR 199/month plan sensible?
According to an ASSOCHAM-PwC joint study ‘Video on Demand: Entertainment reimagined’ video OTT market in India – which primarily comprises content streaming services – is likely to be ranked among the top 10 markets globally with market size of USD 823 million (about Rs 5,363 crore) by 2022. With such statistics at play, Social Samosa discusses the implications of Netflix mobile-only plan for the OTT player and the industry.
The five fundamental drivers of this convergent business model are uninterrupted connectivity, mobile devices becoming the primary source of content consumption, the need to move away from traditional revenue streams, value shifting from content creators to platforms, and ability to provide a personalized offering to the consumer.
Hotstar, Amazon Prime Video, Zee5, and Netflix are touted to be the top players in the Indian OTT league and when recently Netflix announced its mobile-only price pack for India specifically, we weren’t surprised. Meanwhile, the video-on-demand giant is facing a huge loss in its US subscriber base this quarter for the first time in years. The company’s CEO, Reed Hastings blamed the loss on a combination of the price hike and lack of original content. A Verge report mentioned that as the US market becomes oversaturated with streaming services — with WarnerMedia, Disney, and Apple all launching streaming services — the only way to ensure growth is going outside the United States.
While Netflix lost approximately 130,000 subscribers in the United States in Q2, and only gained 2.7 million global subscribers against 4.8 million it had projected, the company is increasingly focusing on international markets like India to boost the growth. While announcing the earnings report, Netflix’s Ted Sarandos was quoted saying, “We’ve been seeing nice, steady increases and engagement with our Indian viewers that we think we can keep building on. Growth in that country is a marathon. We’re in it for the long haul.”
Netflix recently announced 5 originals for Indian market followed by mobile-only price plan pegged at Rs 199 per month, also keeping its basic, standard and premium options available for users. The offering included streaming content sans ads in standard definition (SD) on one smartphone or tablet at a time.
On the sidelines of this announcement, we get talking to a cross-section of industry experts to understand its implications, the price war in the ever-evolving OTT market in India, content production, and more.
Implications of Netflix mobile-only plan
Netflix is touted to be the pioneer of original and quality content but still lags behind Hotstar, Amazon Prime Video and Zee5 in India in terms of market sure. However, according to a Kalagato report, its Average Revenue Per User (ARPU) is higher than other OTT platforms.
According to SEMrush (Digital marketing toolkit for SEO, PPC and content marketing professionals worldwide), people are searching for Netflix Price, the search volume is growing by 18% each month since March, which means that people are willing to use paid content. From another side, India is still a price-conscious market, so the new offer from Netflix could boost a huge growth of subscribers.
Also Read: Netflix announces five new Original shows
On the other hand, Kumar Deb Sinha, Executive Vice President, The Story Lab thinks that it is a no-brainer, that a mobile-only cheaper plan will see a huge spurt in subscriber growth for Netflix in India. “India’s digital story is primarily driven by mobile penetration & cheap data prices. However, even after a 50% discount on the cheapest current plan, it will still be 3 times costlier than Hotstar & Amazon Prime (Current annual membership). Hotstar gives the most bang for your buck any day with their cricket & other sports offering as well as hundreds of hour of catch up TV across languages. They have also started growing their Hotstar Original catalog in 2019”.
While Amazon Prime has the maximum release of new Indian movies every month (across languages). Even Netflix has acknowledged that Indians watch more movies than the global average on their platform. Hence following a new movie release strategy works well for Amazon Prime Video subscribers.
In such a scenario, Sinha is of the opinion that Netflix would find it difficult to gain massive new market share from the existing players. However with better pricing, they will definitely drive higher subscriber growth linked to the release of popular titles, and we should not forget Sacred Games Season 2 is just around the corner. But it will be difficult to sustain the subscribers after they have consumed the blockbuster titles.
Will lead more OTT players moving to freemium? Siddharth Anand Kumar – VP Films and Television Saregama India and Producer at Yoodlee Films said, “It all depends on the independent strategy of the OTT player. Netflix has famously declared that it will stay away from competing with ad revenues or freemium but will work on viewers satisfaction through SVOD. SonyLIV on the other hand, have chosen a hybrid freemium model for monetization, while some have opted for a pure-play freemium model. Depending on company strategy, who it caters to and its core offering, each company will have to decide on its business model”.
Janvi Morzaria, Sales Director, India, Brightcove too observed that there will be some consumers who would be willing to pay for the content provided that they deem the content is premium to them. “Each consumers content taste, preference, and priority vary. Will OTT player eventually move to freemium – depends on their monetization strategy, whether it’s a combination of ad-funded and free, or ad-funded and SVOD hybrid or completely no-ad SVOD”.
According to KalaGato, the market share (by Install) of the Hotstar, Amazon Prime Video, and Netflix stands at 24%, 9%, and 6% respectively in March 2019.
OTT walks the talk with Mobile
India is the only country where Netflix went ahead with this pricing pattern while according to reports, another player ZEE5 is also considering to join the bandwagon. Advait Gupt, Founder, Supari Studios terms Netflix’s move as a great one citing that the growth in smartphone usage is one of the main factors that has led to the rise of online video content in India. Today we are the second-highest number of internet users in the world (350 m), of which, more than 65% uses the internet via their smartphones (as per Google research).
According to SEMrush study, average 33% of traffic from India to netflix.com in 2019 was coming from mobile devices. “If we take a look at the peak time in the last 12 months (December 2018, thanks to ‘Black Mirror: Bandersnatch’) mobile traffic won over the desktop. Considering, that there is an overall trend of moving to mobiles, this is not a big surprise. People are streaming to the TV using mobile phones, which makes this segment of users more interesting for OTT platforms,” stated Fernando Angulo, Head of International Market, SEMrush.
Echoing similar views as Gupt, Kumar too felt that this affordable offering from Netflix is attuned to market realities given the fact that most of the video consumption happens on mobile and the propensity of an Indian consumer paying for digital entertainment is not the highest.
A recent study done on mobile consumption in India shows that in 2019, adults will spend 1 hour, 12 minutes online, and the majority of that time (76.5%) will be via mobile devices.
Kumar added, “Most marketers know the pace at which people are consuming media via their mobile devices shows no signs of slowing down, but the rate at which it is replacing traditional TV viewing is about to hit a milestone. Hence the shift to cater to Mobile consumers is bound to happen. Knowing that smartphones are driving OTT consumption in India, Netflix has had revised its Indian strategy and adopted a mobile-first approach now.”
Content Production and Monetisation- The Bigger Game
Amidst all the price drop in India and loss of subscribers in the US, will Netflix be able to justify the cost of production per series, with most of their series being of high production quality and expensive cast. Angulo believes that With a new price offer, there is a big chance that Netflix will highly increase this number and increase the revenue by getting more subscribers. In 2019 the average monthly traffic to netfilx.com is around 15M.
Gupt noted that Netflix (along with a few other global players) has been focused on raising the bar when it comes to the quality of content – not only in India but across the world.
“While the economic realities might be a little different here, if it does manage to successfully hit the right subscription numbers, it should be able to justify the cost of producing good content – or at least from a consumer’s point of view – I sure do hope that they continue to do so,” he opined.
Quality has always been a driver for consumption and part of the migration from TV is due to this. Kumar feels that the cost of creation is rational, means of monetizing and unlocking value for the platform needs to get more creative and varied, as we can see with this recent move.
On the other hand, Sinha doesn’t think that the move will have any immediate impact on Netflix’s rivals. “However in the long term it will be a battle of great content and serving the right content to their subscribers, and Netflix scores way higher on both counts (with their aggressive investment roadmap for Indian content) as well as their superior algorithms predicting what their subscribers would like to see next based on their consumption habit (married by trillions & trillions of data points collected over decades).”
Once Netflix amps up their Indian original content, aggressive pricing & superior algorithms can change the content landscape very quickly.
While Netflix’s marketing strategy has been on par and at times exceptional, it is a wait and watch approach if the OTT platform creates ripples with its add ons.
With inputs from Jagruti Verma