What Netflix Launch In India Means And The Unique Challenges It Will Face - Pandurang Nayak

Netflix has come to India giving a push to video streaming but will it have a dream run. Pandurang Nayak, CTO of Fork Media warns about the unique challenges it will face in India

Netflix_India Challenges

Editor’s Note: Pandurang Nayak is the CTO of Fork Media, a disruptive digital advertising solutions startup based in India.  Prior to joining Fork, he led the digital video initiatives for Times Internet – successfully launching BoxTV, a Netflix-like premium streaming service aimed at Indians globally. You can follow him on Twitter - @pandurang

During a keynote at the 2016 Consumer Electronics Show (CES), Netflix’s Co-Founder and CEO Reed Hastings, announced the global launch of Netflix into 130 new countries, making it live in more than 190 countries worldwide.  India featured in the new list of countries and social media was quick in welcoming the world’s largest Internet TV streaming service to India.

Let’s look at what the launch means to Indians and some of the unique challenges Netflix will face in India. We will look at three different aspects of the service, in the Indian context – product, content and pricing.

Product – navigation and innovations in video streaming

The product is the easy part to review – Netflix is one of the most evolved products with relentless, data-driven, A/B tested experience that is simple, sleek and unified across devices.

pandurang nayakNetflix also personalizes the recommendation for its users with a complex, state-of-the-art recommendation system and the ability for users to manage multiple profiles on the same account.  This is very convenient for a family to use Netflix and ensure that your wife or kid’s viewing preferences do not mess with yours.

Netflix also has a slick (and legendary) navigation system that lets you browse the entire catalog from a single page.  Yes, you can visit other pages for genre-specific listings.   But over time, when the recommendation engine knows what content you’d most likely watch, you’d only need the first page to quickly pick and start viewing your content.

It is this interface that remains very consistent in terms of navigation and look-and-feel across devices, making a Netflix user immediately comfortable with their personalized list of recommendations irrespective of where they are accessing it.

Being at the core of its business model, Netflix has for many years pioneered innovations and advancements in video streaming.  Even for Indian bandwidths, I expect users to be very surprised with the ease of streaming. Without getting too much into the technical details, Netflix employs adaptive streaming – streaming that adapts to your Internet connection speed.   So if you’re on a low network speed because of that large download happening in the background, you might see a drop in picture quality for a while.

In addition to this, Netflix works with some of the world’s top content distribution networks to get content globally distributed to servers as near to the user as possible.  I tried Netflix on a 3G connection, a 50MBps broadband connection and even a meager 2MBps Internet line – all of them worked great for standard definition (SD) content.

With 4G launching across the country, bandwidth should be a relatively lesser concern for Netflix in the next couple of years. Applying the diffusions of innovations theory, it will be the early adopters that will form the majority of Netflix’s subscribers initially and most of them would most likely have a great Internet connection (and probably a wireless home entertainment setup) to watch digital content.

Content – complex licensing and original content

From an Indian user’s perspective, the content is going to be the most disappointing part of the service. Most users will expect the world’s leading streaming service to have an entire bank of everything that’s available out there. At launch, the content bank is really small and even smaller than what many other Indian streaming sites have to offer.

Estimates say about 7% of the US content library is available in India at launch.  The user comments, in some of the articles that analyzed this, clearly show the user sentiment around the content.  It’s too little, disappointing and not in line with what’s available in the US.

To understand why Netflix would do such a thing, one has to understand that content licensing is complex. Content has a lifecycle. When a movie is made, it is first released to theatres. Only towards the end of a theatrical run, which can be a few weeks to a few months depending on the reception of the movie, it will be licensed to the next stage – which could be set-top box pay-per-view offerings, followed by home video/DVD releases, followed by satellite TV premieres and so on.  The order could change based on how the movie has performed and on the monies that each licensee is willing to offer. Shortening this can affect the revenues collected for a studio – for example, if a movie were shown on TV the first day, lesser audiences would watch it in theatre. With movie budgets going into the millions, this is essential for studios to earn back their investments.

Movie Release Cycle

Digital rights typically start around the DVD window by offering the movie on premium transactional video on-demand (TVOD) services like iTunes, Google Play, etc. Only when the TVOD window is complete, the content might be then placed on subscription video on-demand services (SVOD).

Netflix is a SVOD service and based on its deal with the particular studio, the movie might appear earlier in the cycle.   The license is also geo-specific, so a movie on Netflix might be licensed only for one geo and might require to be licensed separately when Netflix launches in a new region.

In fact, there are exclusivities that sometimes come in the way, as users are discovering that Netflix’s own first original series House Of Cards is not available on the service at launch due to Netflix selling the exclusive rights to a TV studio.

(Note: This is a simple representation. Content licensing has many other aspects that have been left out – including few other windows, studio’s policies and strategies, holdbacks, bundling, the volume of content that is being licensed, the overall deal structure, and many, many other factors).

While it is a priority for Netflix, it might take months, or years, for Netflix to try and bring the content across the globe on par with the US, UK and Canada. Even when that happens, latest content will still not be available on Netflix (like a same-day release as theatre).  That is going to surprise Indian users, who already have access to huge amounts of “library content” (the term in the industry for older content) on the hundreds of TV channels and are mostly looking for newer content.

The English content here might be the one of larger interest, since it’s still a very small number of Hollywood movies that are screened in Indian theatres today. Services like Netflix will expand that and with the availability of subtitles, a much larger portion of the Indian audiences will get “new” content in that form.

That brings us to the next point of discussion – about original content. Original content refers to content that was not licensed by Netflix from another studio, but was created (or commissioned) by Netflix directly.  In such cases, Netflix owns the entire rights and is free from the complex web of licensing restrictions.

When Netflix launched its first original content series, it famously put out the entire series in one go. Users binge watched the entire season to avoid spoilers being put out by others who’d watched it before them. Netflix firmly and surely demonstrated that the future for studios would hinge on them making content available to users when and where the users wanted it.

In India, majority of our entertainment consumption happens via appointment viewing and online video, while growing rapidly, is still in its early years. We have a much smaller percentage of cord-cutters owing to slower speeds and unavailability of digital content. This could change in the coming years with Netflix (and others) promoting top-quality original content along with offering whatever’s available on TV.

Price – growing subscribers and tackling piracy

The biggest factor for Netflix in India is going to be convincing users to pay. None of the major Indian streaming services have been able to convincingly ask its Indian users to continuously pay for the service.

As we all know, India is a very price-conscious market and the value vs. price debate will probably continue for long. Already, there are comparisons to Netflix’s US price (which is about US$7.99 – which is about Rs. 535 at the time of writing this) to its price in India which starts at Rs. 500 (for SD). Users are complaining that for lesser content, the price should be lesser.

Pricing largely depends on licensing costs and the number of available subscribers. With a large volume of subscribers, the unit economics of licensing works out, and more content can be licensed. However, if there are limited subscribers, it will be hard for Netflix to justify acquiring more content. With deep pockets and a global footprint, Netflix should be able to solve the chicken-and-egg problem by offering more and more compelling content.

It will be vital for Netflix to support netbanking and local debit cards if it wants to make the service available to the masses. With only a smaller percentage of Indians having international credit cards (which is required since Netflix is doing an overseas billing without the RBI two-factor authentication, to enable seamless recurring billing), it will be a big factor to sign-up subscribers.

Piracy is rampant in India and pirated copies of most newly released content are readily available.  The easy availability of recent content coupled with the enormous amount of television content in India will make it very hard to establish a “value”. Also, unlike the West, when you don’t use a subscription, users in India tend to cancel immediately.

Conclusion – overall awareness of streaming business

Netflix will probably see a huge amount of signups in the free month, but only a small percentage will trickle into continued paid subscriptions. Younger audiences, who’re already hooked to YouTube, will enjoy the service – but these are also the audiences that do not want to pay.

The biggest outcome of the Netflix launch should be the increased user awareness towards streaming that should benefit incumbent players like Hotstar, BoxTV, Eros Now, DittoTV, Hungama, NexGTV, Spuul, and many, many others to advertise their offerings and offer niches that Netflix is currently not offering.

This should see an overall increase in adoption and price wars that should benefit the customer. It’d be prudent for studios to use this opportunity to shorten the cycles to making content available digitally and kill piracy in the long run.

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