Netflix switches “On” in 130 new Countries –What does it mean for Video Streaming Industry?

  • During CES 2016, Netflix announced that it will add 130 new countries as a part of its global expansion plan.
  • This ensures that Netflix is now available in 190 countries, a year ahead of its previous guided target.
  • The accelerated expansion plan came as a surprise to many; it was much needed good news for the company which saw its subscriber growth in its home country, the US, move at a slower pace than anticipated.
  • During Q3 2015, its international subscriber base grew by a record 2.74 Million, but in the US, it grew by only 0.88 Million–falling short of expectations.
  • In the US, it has been facing tough competition from Amazon Instant Video, Hulu and YouTube.
  • The immediate global expansion means that Netflix will be pitted against local players and startups in some key countries which are agile and have aggressive plans of content acquisition going forward.
  • Keeping an eye on key competitors, tweaking the business model with relevant partnerships, and creating its own content will be the key for 2016 growth.
  • Spending on content acquisition and creation will come with a cost and likely further impact its profitability. As a part of expansion, international streaming margins will be under pressure in coming quarters.
  • Netflix’s international streaming margin was -13% in Q3 2015 and is expected to go deeper in the red to around -21% over Q4.
  • Netflix’s total paid subscriber base reached 66 Million at the end of 3Q 2015 fueled by international subscribers growth.

 

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  • Netflix global expansion is a signal that we can expect an ecosystem growth for Internet TV in 2016 and beyond. This will lead to multiple partnerships with various stakeholders, which is likely to spur innovation in the online video streaming industry.

What it means for India:

  • Netflix is entering India at the right time. With LTE becoming mainstream in 2016, it is a potential opportunity for Netflix to target users in the vast number of  metro and Tier 1 cities in 2016.
  • With almost 1 in 2 smartphones sold being LTE in 2016 in India, video streaming contribution will remain very high in terms of content consumption with the opportunity for multiple players to reap benefits.
  • However, we expect certain challenges like price sensitivity, high licensing costs, vernacular content and infrastructure problems outside of metro areas for Netflix as they move aggressively in India.
  • Pricing in India, from INR 500 ($7.5) to INR 800 ($12), is more than double the price of competitors in the market. While the premium leverage on its content might entice users in metro areas, it will be a challenge to justify the premium pricing outside of major metros.  Well-received home grown content will help.
  • Paid, streaming content is only in the single digits in India today.  It will be a challenge for for Netflix to win mass adoption.
  • Netflix may need to tweak its business model by partnering with network providers.  This will give them a platform to increase its reach to a much larger subscriber base.  It will also allow them to implement multiple payment methods.
  • Bundling content and tie-up with ecosystem players will be the key.
  • India is a country with a diverse user base.  User preferences and content consumption patterns change within each regional landscape. Netflix needs to prepare itself to acquire vernacular content and stream it to end users through various partnerships–including telcos.
  • Competition will grow.  Movie studios may enter the space.

To conclude, the ever-changing technological landscape in today’s era will lead to shifts in competitive dynamics in the video streaming industry. The winners will be the ones who are agile and adapt their business models quickly, avoiding high subscriber churn.