Can Netflix and Amazon Disrupt India’s Streaming Video Market?

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U.S. e-commerce giant Amazon recently fired a fresh salvo in India with its video streaming service, Amazon Prime Video. On April 19, the company launched its streaming media device, the Amazon Fire TV Stick, in the country. The device offers access to local and international movies, television shows and popular apps when plugged into a HDTV and includes features designed specifically for India. For instance, it has a voice search in Hindi and English and also offers data monitoring and other features to help customers optimize their data plans and stream more content using less bandwidth. It also comes with free data for three months. India is only the fifth market – after the U.S., the U.K., Germany and Japan — where Amazon has introduced this device.

“We started Prime with unlimited fast delivery and then added unlimited access to Prime Video at no additional cost. Now, the Fire TV Stick transforms TV viewing and makes the Prime experience even better,” said Amit Agarwal, senior vice president and country manager of Amazon India, at the Fire TV Stick launch in New Delhi. Nitesh Kripalani, director and country head, Amazon Video India, added: “Our aim is to solve the problems our customers face. With the Fire TV Stick, customers can watch our latest and exclusive movies and TV shows from the comfort of their living rooms.”

Prime Video made its debut in India a few months ago and is an important part of Amazon’s overall arsenal as it battles for supremacy in the country’s growing e-commerce market. Amazon entered India in 2013 and introduced its popular subscription-based program, Amazon Prime, in July last year at Rs.499 per annum ($7.78 at the exchange rate of $1 = Rs.64) to drive customer loyalty through features such as unlimited one-day deliveries and early access to lightning deals. (In the U.S., Prime customers are estimated to spend around four times as much as non-Prime customers.) In December, Amazon added video as a free add-on service to its Prime offering in India to make it even more attractive.

The move seems to be paying off. “We are humbled by the tremendous response that has led to Prime sign-ups more than doubling since our launch, consuming nearly a billion minutes of content. The Prime Video app is among the top five entertainment apps across iOS and Android,” says Kripalani.

While announcing the company’s better than expected first quarter results recently — Amazon posted $35.7 billion in revenue, beating analysts’ estimate of $35.3 billion — CEO Jeff Bezos made special mention of Amazon’s performance in India. Bezos said: “Our India team is moving fast and delivering for customers and sellers …. We’re grateful that customers are responding — Amazon.in is the most visited and the fastest growing marketplace in India. It’s still Day one for e-commerce in India, and I assure you that we’ll keep investing in technology and infrastructure while working hard to invent on behalf of our customers and small and medium businesses in India.”

While the main objective of the Prime video service is to increase customer stickiness and boost Amazon’s sales, it has created ripples in the country’s nascent but growing video streaming market. At around $8 a year (far cheaper than its U.S. rates, which range from $8.99 to $11 a month depending on the plan), it is among the cheapest internet video services in India. Gaurav Gandhi, chief operating officer of Viacom 18 Digital Ventures, the digital arm of media house Viacom 18 which runs the online video service Voot, describes it as a “very disruptive price point.”

Amazon Prime Video is also available at a fraction of the price of its global competitor Netflix, which entered India last year. And while Netflix is the world’s leading internet television network with over 86 million members in over 190 countries, according to industry tracker App Annie, Amazon Prime Video currently has around 9.5 million subscribers in India — more than double that of Netflix’s 4.2 million.

At monthly subscriptions ranging from Rs.500 to Rs.800 ($7.79 to $12.45 depending on the plan), Netflix has maintained its global pricing and is the most expensive video streaming service in India. Hotstar, Star India’s digital platform and the leader in this space with over 60 million users, offers most of its content for free; its paid subscription for premium content is priced at Rs.199 ($3) per month.

“[Amazon and Netflix] will force other players to produce original content faster than they would otherwise have done.” –Jehil Thakkar

Netflix and Amazon are the only major ‘subscription-only’ players in India. Others – there are around 30 online video service providers in India – typically are advertisement-led and are either totally free for the viewers or have a freemium model. According to industry estimates, of the approximately $220 million video streaming market, only a fraction is subscription-based.

Betting Big on India

Reed Hastings, founder and CEO of Netflix, says premium pricing is part of Netflix’s India strategy. In a recent visit to the country, he said: “There are around 300 million smart phone users in India. But we are targeting mostly the high end — 10 or 20 million — for whom our pricing is not a problem.” Pointing out that India is “hugely important” to Netflix because “it’s one of the strongest internet markets,” Hastings added that “India has seen the highest growth among all its Asian markets.”

In a bid to increase its reach here, Netflix recently entered into strategic partnerships with leading telecom service provider Bharti Airtel and Videocon direct-to-home TV service; it will now be available on the mobile and direct-to-home platforms of these two companies. To make payments more convenient for its subscribers, Netflix has tied up with telecom firm Vodafone; Vodafone customers can pay for their Netflix subscriptions via their monthly telephone bills.

User experience, Hastings said, is going to be a key focus area for Netflix. “When we started, it took one-and-a-half megabits to stream video on your mobile, and then we were able to bring it down to one megabit and then to half a megabit. Now we can get it down to 200 kilobits. So you can get 24 hours of viewing with 1 GB of data. We are further trying to bring it down to 100 kilobits.”

Netflix’s India performance evokes a mixed response. Jehil Thakkar, an industry analyst who until recently was head of media practice at KPMG India, says Netflix has had “minimal impact” and “is being consumed by only a very small sliver of the India market.” Rajiv Vaidya, CEO of video streaming platform Spuul, feels that Netflix has “created a huge buzz” at the top end of the market.

Frank D’Souza, head of the entertainment & media practice at PwC India, notes: “Despite the fact that Netflix is a subscription-based platform in a market dominated by players like Hotstar and Voot which provide content almost free of cost, it has been able to attract 4.2 million active users and is among the top 10 OTT (over-the-top content, which refers to audio, video or other media delivered over the internet without users needing a cable or satellite subscription) platforms in India. Therefore, Netflix’s performance is quite reasonable in that sense. The performance of Amazon Prime Video under similar circumstances, in a shorter span of time, has been relatively better, but that is on the back of a differentiated pricing strategy, and an existing customer base for its e-commerce business.”

Content Is King

So what does the entry of these two big global players mean for the industry in India? The biggest impact will be on the content market, say industry players and analysts. Gandhi explains: The bread and butter of online video in India is catch-up TV or sporting rights. While sporting rights are very expensive, 80% to 90% of the TV content is owned by six to eight players like Star TV, Sony, Viacom and Zee. Of these, most have their own streaming services; they sell only limited content. Netflix and Amazon therefore have to outbid for local content and also create from scratch. “In the long term, creating original content will be more sustainable and also a strong differentiator,” says Gandhi.

Kartik Hosanagar, Wharton professor of operations, information and decisions whose research focuses on the digital economy, notes: “Both players — especially Amazon — have started investing a lot in content acquisition. They have started paying a lot of money to content producers to produce original shows for them, sometimes even in the Rs.1crore to Rs.5crore ($150,000 to $800,000 per episode range.” Adds Thakkar: “The content production market in India has really perked up because of Amazon and Netflix. This will force other players to produce original content faster than they would otherwise have done.”

Take Amazon. To add to its library of international movies and TV shows, it has reportedly earmarked an investment of Rs.2000 crore ($310 million) for acquiring and producing content in India. To date, it has signed up with 18 original content partners for streaming their shows, with nine Indian original shows already in production, making it one of the largest Indian original line-ups on an OTT platform. One of the shows is currently in the post production stage.

According to James Farrell, head of content, Asia Pacific, Amazon Prime and Amazon Studios, after the U.S. and Japan, India is a focus market in terms of content creation. Adds Kripalani: “We are committed for the long term to the Indian market and excited to be making multiple Indian original shows — many of which are in production — with top talent. Meanwhile, we have licensed top content. It’s no secret that Amazon is making a big investment in India and is happy to take original content, created by Indian talent, to audiences worldwide.”

Netflix’s entry last year provided Indian viewers access to the company’s super-hit original shows such as House of Cards and Narcos. Now, offering local and regional content in India through both licensing it from local content providers and also producing it in-house is high priority. For instance, it has tied up with Phantom Films to create an original series based on author Vikram Chandra’s critically acclaimed book Sacred Games. Shot on location in India, this Hindi-English series will be available to Netflix members globally upon completion. Netflix will stream its first Indian comedy special featuring one of the country’s leading stand-up comedians, Vir Das. It has also tied up with Bollywood mega star Shah Rukh Khan’s production house Red Chillies for exclusive access to stream its films.

“Both Netflix and Amazon have jacked up the prices for acquiring and producing content. They are in the land-grab mode at present.” –Rajiv Vaidya

In a media interview, Apoorva Mehta, chief executive at production and distribution firm Dharma Productions, said: “Having met both [Netflix and Amazon], I can vouch for the fact that both are sold on the India story. They are both equally aggressive when it comes to content.” Adds Spuul’s Vaidya: “Both Netflix and Amazon have jacked up the prices for acquiring and producing content. They are in the land-grab mode at present.” According to Vaidya, Spuul, which currently buys content, will soon also be producing original shows. Analysts say that most players like Hotstar, Eros Now, Sony Liv and Voot have upped their content budgets significantly since the entry of Netflix and Amazon.

S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore, points out that India culturally has been a festive and film-oriented entertainment country. In recent times, choices have proliferated and on-the-go entertainment is catching up. Kumar suggests that the way forward for any brand is to sharply segment the market. “More than just creating content, creating relevant content in tune with the preferences and lifestyles of consumers will benefit a brand in the long run.” PwC’s D’Souza adds: “Global trends indicate that though consumers want to be seen as being global, consumption patterns and tastes tend to be largely local. Given the Indian market size and competition, each player would need to determine how they interplay foreign content with creation and delivery of local content to be able to have a meaningful share of the OTT market.”

Netflix and Amazon need to factor in another aspect: Unlike the U.S. where internet video is watched primarily on TV screens, in India, which is largely a single TV home market (only 5% are multi-TV homes) this viewing is more on mobile screens. According to the Indian Media and Entertainment Report 2017 by KPMG India and the Federation of Indian Chambers of Commerce and Industry (FICCI), between 2016 and 2021 mobile video traffic in India is expected to grow at a compound annual growth rate of 68% and the number of video capable devices and connections is expected to grow 2.2 times, crossing 800 million in number. Video is expected to grow to 78% of the overall mobile data traffic by 2021. Making content for the mobile screen requires a different kind of storytelling, says Voot’s Gandhi. “On the phone you have multiple distractions – calls, messages, social media, etc. If you want to tap into the Indian viewer who is watching content on the phone, you have to structure your content very differently. You have to make sure that the content is so compelling that the viewer doesn’t get distracted.”

Growing the Subscription Pie

Netflix and Amazon are expected to both pave the way for paid content in India and also benefit from the tailwinds that are driving the subscription model. So far, there have been three main barriers to this. One, the mindset. At a basic monthly package of around $3, cable TV is cheaper in India than in most places around the world. The average Indian consumer doesn’t like paying extra (beyond cable) for content that is delivered at home. They are willing to pay extra for content only if it is part of an experience — like an outing to a movie theatre. Two, high data costs. And three, limited options and low adoption of online payments.

These barriers are now reducing. The aggressive launch of telecom service provider Reliance Jio in September last year has shaken up Indian telecom sector and is resulting in lowering data prices and making it affordable and accessible. In the KPMG India -FICCI 2017 report, Dolly Jha, executive director of Nielsen India, notes that as per Nielsen estimates, the average time spent by an individual on streaming videos has increased nearly nine times from two minutes a day in Q2 2014 to 18 minutes a day in Q4 2016. After the demonetization exercise in November last year and the push towards a less-cash society, online payment is gaining traction. There is also increasing awareness and growing popularity of online video, and consumers are opening up to the idea of paying for original and exclusive content and for immediacy. “We expect the subscription market to take off strongly,” says Gandhi, adding: “The entry of Netflix and Amazon is both a challenge and boon for us. It creates a proof of concept and opens a brand new category — of people willing to pay for content. It’s a great thing for the industry as a whole.”

Voot currently has 17 million users and is ad-based with over 120 brands advertising on its platform. Gandhi says he is looking to introduce a subscription model shortly. “We have to be mindful of both models and see how it all plays out. It’s an emerging space and we are all learning at present.” A bundling of data and content, he believes, could help players to unlock the value of the subscription model. D’Souza suggests that based on the current industry dynamics, “a model which can support a gradual shift from AVOD (advertisement-led video on demand) to SVOD (subscription-led) and TVOD (transaction-led) will survive in the longer run. Also, how effectively AVOD models can be put into play would depend largely on how better targeted advertising can be created by analyzing individual consumer behaviors through appropriate data mining.” Thakkar believes that video streaming can’t be profitable purely on an ad-led model. “In the long term, you have to build a strong subscriber base,” he says.

New Business Models Will Emerge

Will India follow the U.S. by way of switching over to internet TV? No, says Thakkar. “Unlike in the U.S. where many people have cut the cord and replaced cable television with an OTT service, in India the two will co-exist. You can get a basic cable television package here at $3 a month, and no one is going to cut that off.”

“The hope is that the e-commerce story — massive investments fueled by unrealistic expectations followed by tightening of the purse strings — doesn’t play out here.” –Kartik Hosanagar

Then of course, even as there are strong tailwinds for a robust video streaming industry, challenges continue. For instance, customer experience is an important element of an OTT platform and can be a strong differentiator. However that experience is largely beyond the control of an OTT player and is dependent upon the telecom ecosystem prevalent in the country. “Over the next two to three years how the telecom ecosystem responds to a higher number of people using high-speed bandwidth services, and what kind of collaborations emerge within the industry, will determine the rate of growth of the OTT market in India,” says D’Souza.

Thakkar believes that at some point the standalone video streaming players will have to team up with those who distribute the content — the telecom players, for instance. Pointing out that currently apps like Wynk and Airtel Movies from telecom service provider Airtel and Jio Cinema from Reliance Jio have some of the largest consumer pools, Thakkar says: “The Indian consumer doesn’t like to pay explicitly for content. They don’t mind paying implicitly. So even though the consumers pay for their OTT service by way of data charges, they believe they are paying for access rather than content.”

The Winning Edge

S. Sadagopan, professor and director of the International Institute of Information Technology (IIIT) Bangalore, believes that Netflix and Amazon could have an advantage in India because of their deep pockets and global expertise. But, he adds, “if 4G penetration to remote areas is sustained and if 5G becomes a reality in urban pockets, the barriers to entry will drop dramatically. Superior quality, local content and affordability are the three mantras for success in this market. Whoever – global or local – meets these three KPIs (key performance indicators), will be the winner.”

Gandhi feels that Amazon and Netflix have the advantage of being strong technology companies. “They come with very good engineering and technology products which help provide a superior customer experience.” And Amazon, he says, comes with a large retail strength which helps justify deep investments in the India market.

Wharton’s Hosanagar adds another perspective: “There is no doubt in my mind that there will not be any early returns from these investments [of Netflix and Amazon]. It will take some time before people start switching to digital platforms en masse. So the real question then is whether they will have the patience and stay invested for the long run.”

Pointing out that the next two to three years are crucial, Hosanagar says he doesn’t expect that the market will grow exponentially. “The main question is whether the investments will continue to grow in 2019 as they did in 2016. If so, the prognosis is great. The hope is that the e-commerce story — massive investments fueled by unrealistic expectations followed by tightening of the purse strings — doesn’t play out here.”

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