Just when it looked like Netflix (NFLX -3.92%) had cracked the code to achieve its ambition of getting its next 100 million subscribers from India, price hikes in the country's telecom space look all set to derail its recent momentum. The streaming giant had been betting on cheap data plans offered by Indian telecom companies, which allowed it to record 700% growth over there in the last fiscal year.
The low-priced data plans offered by Indian telcos allowed Netflix to maintain premium subscription rates in India when compared to rivals. The company also went a step further to woo more Indian customers with its 199-rupees (roughly $2.80 at the current exchange rate) mobile-only monthly plan. That was a smart move considering that 65% of video content in India is consumed over mobile networks, according to video streaming provider Vuclip.
What's more, despite being expensive compared to rivals' full-featured plans, Netflix reports that the mobile-only plan's sales have surpassed its expectations. But things might take a turn for the worse now that Indian telcos have substantially hiked data rates. That's bad news for Netflix, which remains the most expensive over-the-top video streaming service provider in India.
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A big jump in data prices could hurt Netflix's Indian dreams
BBC News points out that India's top three telco providers -- accounting for 90% of the country's billion-plus mobile subscribers -- have hiked their mobile data tariffs by more than 40%. The likes of Reliance Jio, Airtel, and Vodafone Idea have been forced into making such a move thanks to the meager average revenue of less than $2 per month per user, which has seen them record huge losses.
Airtel and Vodafone Idea racked up more than $10 billion in losses during the second quarter of the ongoing fiscal year. The result has been an increment in tariffs that range from 15% to 50% across different plans. Reliance Jio, on the other hand, has announced a 40% bump in its tariff plans.
These tariff increments are going to hurt 95% of the country's mobile subscribers who use prepaid plans. Additionally, the higher-than-anticipated hike in tariffs could stymie the rapid internet growth India has been witnessing so far on the back of the cheapest mobile data offerings in the world.
Furthermore, Indian telcos could be forced into further data price hikes, since they owe $18 billion to the government. All of this could be bad news for Netflix because consumers' preference for lower-priced plans from rivals could increase in the wake of the price hikes.
A growth story in trouble
The price-sensitive nature of Indian consumers has always been a thorn in the flesh for Netflix in India. According to a survey conducted by app distributor MoMAGIC from June to August 2019, Netflix turned out to be the least-preferred streaming platform in the country.
Just 9% of the 7,500 unique respondents chose Netflix. Rival streaming platform Amazon (AMZN -1.64%) Prime Video pulled 26% of the respondents, while Hotstar, owned by Disney (DIS 0.18%), was preferred by 41%. The reason Netflix lags behind rivals isn't hard to see.
The cheapest mobile-only plan, discussed earlier, is expensive when compared to Prime Video. Amazon charges 129 rupees a month ($1.80 at the current exchange rate) for the Prime service, but it delivers much more than just video streaming. Amazon Prime subscribers can not only watch a variety of video content, but they also get unlimited access to music and enjoy faster delivery options, among a host of other benefits. What's more, consumers can use their Amazon Prime Video subscription across devices such as televisions and computers.
Meanwhile, Hotstar's aggressive pricing will pose another challenge for Netflix in light of the increased mobile tariff rates in India. In all, there's now the possibility that preference for Netflix could drop as the higher tariffs pinch consumers' pockets, forcing them to switch to cheaper options that offer better value.
Netflix tries to fight back
Netflix won't be going down without a fight. The streaming giant is reportedly testing new subscription plans in India, where it will offer 50% discounts to those who buy 12-month plans. The three-month plan will reportedly carry a 20% discount on the original price, while the half-yearly plan is expected to carry a 30% discount.
Offering its annual plans at half the current prices would make Netflix's services much more competitive. In that case, the mobile-only plan could be had for just 100 rupees ($1.40) a month. This could tilt the balance in Netflix's favor to some extent, though it will still remain expensive, as Amazon and Hotstar currently charge 999 rupees (roughly $14) for a year of service.
Moreover, any price cuts from Amazon or Disney could knock the wind out of Netflix's sails. So Netflix's ambitious plan of dominating India's video streaming market to sustain its growth story and become a top stock is in trouble right now.
