Netflix, Inc. (NASDAQ:NFLX) and Amazon.com. Inc. (NASDAQ:AMZN) both need India’s estimated 1.3 billion people if they hope to succeed over the long term. After notable upsets in China, stumbling in India isn’t an option. Which is why Jeff Bezos and Reed Hastings have big plans for India.
In January, Netflix entered India as part of its global expansion to 130 more countries. Amazon has been thriving in India for several years now, launching there in November for less than a dollar a month. Certainly, both NFLX and AMZN see the importance of succeeding in India.
In October, Netflix decided not to enter China, instead choosing to license content to local services. Amazon seems to have learned lessons from its subpar performance in China, and now , Flipkart and Snapdeal.
Netflix CEO Reed Hastings wants to produce the while Amazon plans to acquire And streaming in India has multiple tailwinds at its back, with 166 million Indians currently while its smartphone growth .
While slow and unreliable internet and high data charges have this appears to be changing. The recent launch of Reliance Jio, a 4G network offering , sent data costs . Additionally, disposable incomes are rising in India, and streaming services will benefit from a . But India remains poor, and a dozen players vie for dominance over its streaming market.
So how will Netflix and Amazon Prime Video fare in India?
The Best Bang for India’s Bucks
The World Bank put India’s per capita income at $1,581 in 2015, so Indian viewers will be very price-sensitive, something Netflix and Amazon need to keep this in mind. Streaming services in India derive their revenue mostly from ads, as very few are willing or able to pay for streaming services. Frost & Sullivan found over-the-top video viewers in India, but only 1.3 million paid subscribers.
Here Amazon Prime enjoys a favorable position, as Amazon Prime costs $15 a year in India. Netflix starts at 500 rupees (over $7) a month, nearly six times the cost of Amazon Prime membership. Although NFLX pricing seems affordable by U.S. standards, it’s astronomical by Indian standards. Think of it this way: A Netflix subscription costs 5.56% of the average Indian’s annual income. To put this in perspective, the equivalent share of an average American’s income would be $3,104 a year.
Nearly all Indian competitors cost less than Netflix. Indians can watch , owned by Eros International plc (NYSE:EROS) for free with ads, or pay 50 to 100 rupees a month for premium.
Hotstar, owned by Star India, a subsidiary of Twenty-First Century Fox Inc (NASDAQ:FOX), charges , or just under $3. , a joint venture between Viacom, Inc. (NASDAQ:VIAB) and an Indian firm, also offers free viewing with ads. Hooq — backed by Sony Corp (ADR) (NYSE:SNE), Time Warner Inc (NYSE:TWX) and Singtel — costs .
Amazon clearly stacks up better against the competition in terms of price.
But Netflix shareholders shouldn’t worry about the pricing too much … it’s part of the plan.
NFLX plans on moving into the Indian market , first and expanding later on. Reed Hastings spoke of plans to for India in the long run.
How Amazon Prime, Netflix Stack Up
While both Netflix and Amazon are buying local content, Amazon is its content more for India, at least now. Netflix wants to buy programming that can succeed globally, including some shows from India. Amazon wants content just for India, and bid on Indian cricket rights. Netflix CEO Reed Hastings says that “there’s no point in us trying to out-Bollywood Bollywood at this point”, but Netflix is open to localizing in the future.
Indian streaming services boast a rich selection of local programming, but generally fall short on global content. An article written in July put the number of international shows on hotstar at . The author called Netflix “the only truly usable online platform to watch international TV shows and movies.” offers 197 shows and 537 movies, most from outside of India.
Indian viewers value original content, with listing freshness of content and variety as very important. Amazon and Netflix must differentiate themselves from channels in India. Many Indians hold cable TV subscriptions and won’t want to pay extra and watch shows they already see on TV. Netflix produces hits which will resonate with Indian audiences, including House of Cards, Narcos and Orange is the New Black. Amazon Originals include Transparent, The Grand Tour and The Man in the High Castle.
Bottom Line on NFLX, AMZN
It will take a long time for India’s video-on-demand market to mature. Right now, the Indian market remains in its earliest stages, with low disposable incomes and widespread video piracy. Few seem willing to pay for streaming subscriptions, with most watching ad-supported content. It will likely take years for India to have a significant impact on Amazon or Netflix.
This is not to say that Netflix is too early. By , they can build a loyal customer base and learn about the Indian consumer. Learning and adapting earlier is better. Make small mistakes now rather than bigger mistakes later on. As disposable incomes in India rise, demand for streaming will increase. India represents a fifth of the world population, and is too big for either NFLX or AMZN fail in.
As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.
