Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

Netflix Needs Local Content to Make a Big Dent in This Promising Market

By Harsh Chauhan - Jun 2, 2018 at 2:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The streaming giant has made all the wrong moves in this region so far, but it's now correcting its course.

Earlier this year, Netflix ( NFLX 0.40% ) CEO Reed Hastings had remarked that his company's next 100 million subscribers will come from India. Hastings, however, didn't point out how much time it might take to achieve this ambitious number, because in reality, the streaming giant is nowhere close to its goal.

Netflix had just 520,000 paying subscribers at the end of 2017 in India, falling behind Amazon's Prime Video Service, which clocked 610,000 subscribers despite entering the country a year later. So Netflix has a steep mountain to climb before it can even think of making a dent in this fast-growing, video streaming market.

Miniature theater chairs placed on a laptop keyboard

Image source: Getty Images.

Netflix has made the wrong moves so far

India is still a developing country with a per capita GDP of $1,861. So people won't be spending a lot of money on video-streaming services compared to more developed regions such as the U.S. Still, Netflix decided that it won't offer any introductory prices for the price-sensitive Indian consumer, and it ended up being undercut by rivals such as Amazon and local player Hotstar.

Throw in the lack of content, especially of the local variety, and it becomes clear why Netflix is in the fifth position in the country's video-streaming market. Ernst & Young estimates that Indians spend 93% of their time in consuming content in Hindi and other regional languages when watching online video. This has proven to be Netflix's Achilles' heel, as 75% of its Indian content is in English, according to video analytics start-up Vidooly. Though there's some Hindi content on offer, the presence of regional content is almost negligible.

By comparison, local content comprises 35% of Amazon Prime Video's India portfolio. And the Twenty-First Century Fox-owned Hotstar, which currently leads the video-streaming space in India, offers a wide portfolio of regional programs, as well as 200-plus shows from the U.S. market, including the highly popular Game of Thrones. Additionally, Hotstar's cricket coverage acts as a magnet for subscribers looking to watch the sport on the go.

Not surprisingly, consumers will opt for a platform like Hotstar that gives them a lot of variety at just a third of Netflix's pricing. The good news is that Netflix is course-correcting by lining up a string of big-name local productions that could turn the tide in its favor.

Tuning in on local content

Netflix will be spending nearly $90 million a year on original content in India. The company has partnered with leading production houses in a bid to churn out eight to 12 original movies this year, which will be tailor-made to local tastes by targeting topics such as cricket, political thrillers, and children's animation.

Additionally, the company has decided to adapt books written by Indian authors into films and web series. The first such series -- Sacred Games -- is based on a book that covers an infamous criminal from one of India's largest cities and will be released in July this year. Netflix will follow this up with at least five originals that are based on best-selling books by Indian authors. This will give Netflix access to an established pool of fans who could eventually buy a subscription to watch a film based on their favorite books.

Additionally, Netflix has charted out a smart strategy of exporting content made in India to international markets. Sacred Games, for instance, will suit the tastes of audiences in markets such as the U.S., U.K., and Canada, among others. As such, Netflix will distribute this original globally in more than 20 languages.

This Netflix strategy of developing local stories with a global appeal will help it generate more value from the content that it develops for the Indian market. This could potentially help it reduce overall content development costs thanks to lower production costs in India. For instance, a mainstream film in India has an average budget of around $7 million, which is way lower than the $70 million to $90 million average cost for producing a Hollywood feature film.

Pricing might not be a problem

The Indian Brand Equity Foundation forecasts that consumer spending in India could more than double by 2025. This growth in the purchasing power will increase Netflix's addressable market, as more consumers will be capable of affording its service. As such, Netflix's premium pricing in the Indian market shouldn't be a problem in the long run.

Additionally, India is expected to become the second-largest consumer of online video in the next couple of years, so Netflix could see a massive jump in the number of subscribers thanks to the market's secular growth. In fact, Digital TV Research forecasts that India could become Netflix's seventh-largest market by 2023, with 5.7 million subscribers, which would be more than 10 times the current count.

But it will have to bring its A-game by producing relevant content in light of the stiff competition offered by rivals, or else Netflix's dreams of building a huge subscriber base in India will be a fantasy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$628.08 (0.40%) $2.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
652%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.