Netflix (NASDAQ:NFLX) treats India as its next growth frontier because of booming smartphone demand and the country's fast-growing middle-class population, but the streaming giant has its task cut out there.
India's over-the-top (OTT) video streaming market is a hotly contested space, with several stakeholders such as Amazon (NASDAQ:AMZN) trying to grab a piece of the pie. This has forced Netflix to cut prices in India so that it can remain relevant in a price-sensitive market. The strategy has paid off nicely, as Netflix's revenue in India had nearly doubled in fiscal 2020. But Amazon is trying to bring Netflix's juggernaut to a halt with a new pricing strategy of its own.
Amazon makes a smart play in India's video streaming market
Amazon's Prime Video service has launched a mobile-only plan for Indian customers. Priced at 89 rupees (roughly $1.22 at the current exchange rate) for a 28-day subscription, the plan is currently available to prepaid subscribers of the telecom giant Airtel -- India's second-largest telecom company, with nearly 327 million users.
Amazon is offering a 30-day free trial to Airtel prepaid users, following which they can opt for the mobile-only plan. There are a couple of limitations to this plan, however. First, it is a single-user plan, so users opting for it cannot stream content on multiple devices at the same time. Second, it only allows users to stream standard definition content.
This is similar to what Netflix's mobile-only plan offers, but there is a big difference in pricing, as the company charges customers 199 rupees (around $2.72) a month. Amazon is charging Indian customers less than half that amount, putting it at an advantage given the price-conscious nature of the Indian customer.
What's more, Amazon has made a smart move by partnering with Airtel for the initial rollout of the mobile-only Prime Video plan. That's because Airtel enjoys a stronghold in India's rural telecom market, with an estimated market share of 39% in 2019. The Broadband India Forum reports that rural India accounts for 65% of the country's video consumption despite accounting for only 40% of the internet connectivity.
The fact that Airtel is offering 6GB of data along with the mobile-only Prime Video plan could help both companies attract more users in the rural markets because of low pricing. India's rural per capita income is just around 42% of the urban per capita income, making Amazon a more logical choice for customers in those areas as compared to Netflix.
Can Netflix counter Amazon's deal?
Netflix reportedly holds a bigger share of India's video streaming market in terms of revenue at 14%, which is double Amazon's 7% share. That's not surprising, as Netflix's plans in India are priced at a premium when compared to rival streaming services. But Amazon's latest ploy could help the company increase its revenue share, as lower prices will make the Prime Video service accessible to more customers, especially in the rural markets.
On the other hand, Netflix may not resort to price cuts to curry favor with Indian customers at a time when it is reportedly thinking of hiking prices elsewhere to offset a slowdown in subscriber growth. However, the streaming specialist may have an ace up its sleeve in the form of regional and local content.
Netflix introduced a Hindi interface in India last year to widen its reach. That was a logical move, as more than 43% of the Indian population speaks Hindi as per the 2011 census. The company backed up that move with the release of 90 new originals in India in 2020, up from just 30 in 2018, according to data from the Boston Consulting Group.
Third-party data suggests that these strategies (including a budget, mobile-only plan) may have worked for Netflix in India last year, helping the company more than double its paid subscriber base. The company plans to follow a similar strategy in 2021 with new local programming. A Netflix executive told Indian financial daily Mint that the company has content in 11 Indian languages at present, while it can dub and subtitle in 32 languages.
Amazon, however, has trumped Netflix in releasing India-specific content. It released 110 originals in India last year, outpacing Netflix. So, Amazon could step up its game in India's fast-growing video content market and eat into Netflix's revenue share with the help of its new, affordable plan that's targeting the right growth hotspots.
Amazon investors are going to like this, as the video streaming market in India could hit $4.5 billion in revenue by 2025, thanks to a compound annual growth rate of 26% as per third-party estimates. What's more, the company's growing stature in video content can also aid the growth of its e-commerce business in India, making Amazon stock an ideal bet for investors looking to profit from the world's fifth-largest economy.