Netflix hopes to change the VOD dynamics; the competition is ready

With the launch of Netflix in more than 190 countries, the Indian market is set to witness healthy competition and better content. But the Indian VOD players have not pressed the panic button as was speculated in some quarters

Archit Ambekar | Mumbai | January 11, 2016

The year has already begun with good news. Last Thursday, Netflix launched in 190 countries including India, threatening to change the game in the Video-on-Demand (VOD) space in the Indian market. While everyone has given a warm welcome to Netflix in India, only time will tell how welcome the platform is given its formidable reputation in the VOD market.

While India already has existing players like Ditto TV, Spuul, Hotstar and others, Netflix will provide exclusive international content for which consumers have been waiting. This is just the beginning of the race. Reliance Jio is also slated to launch in this space and many speculate that Jio will be bigger than anything we have seen so far and may even leave Netflix behind.

A lot has been said and written about how Netflix will work, but the question is whether  advertisers in India are ready to advertise on VOD platforms? Bestmediainfo.com got in touch with a few industry veterans to know their views about the future of VOD vis-a-vis advertisers.

Pricing strategy

There is a lot of speculation about the pricing strategy of Netflix – whether it is going to be expensive in India or predatory as in many markets? When asked, Netflix responded: “Pricing is fairly similar around the world. New markets will be priced starting at $7.99 per month or the local currency equivalent. Netflix plans are offered in three tiers: Basic, Standard and Premium. Basic is Rs 500; Standard, Rs 650; and Premium at Rs  800.”

The packages offer access to every title available on Netflix in the territory concerned with no limit on how much one can watch.

The basic plan allows one person to stream series and movies from Netflix in standard definition. The standard plan allows two people to stream Netflix at the same time and in high definition when available. The premium plan allows four people to stream series and movies from Netflix at the same time. Additionally, select titles will be available in UHD 4K to those who are using UHD compatible devices.

Gaurav Gandhi

Gaurav Gandhi, COO, Viacom18 Digital Ventures, sharing his views on pricing of Netflix in India, said, “The US cable TV ARPU (Average Revenue per User) is around $ 80-100 while Netflix's subscription rates are in the bracket of $ 8-10. That is a huge price arbitrage advantage that Netflix and other OTT operators had in the US. The Indian cable TV market has one of the lowest ARPUs in the world. The typical ARPU of cable in India is at $4-5. Netflix's basic subscription plan is virtually double. Even if one takes the premium HD packs of DTH and Cable companies, the same would at best be on a par (with all 300 channels ) with the Netflix entry price. So there is not really any price advantage or arbitrage when it comes to comparison with cable/DTH.”

Gandhi added, “When the above pricing is seen in the context of high telco data costs (again data costs are referenced to telco voice costs), it becomes another challenge that the operator would need to overcome.”

The Indian consumer is ready

There is a notion that the Indian consumer is not ready to pay for content right now. But is this a correct assumption? After all, consumers have been waiting for Netflix in India. Commenting on this, the Netflix spokesperson said, “Netflix offers exclusive programming not available anywhere else. This content is available on demand anytime, anywhere on virtually any Internet-connected screen. We believe it is a compelling offer and those interested in checking out the service can sign up for a free trial at Netflix.com and cancel at any time.”

Uday Sodhi

Striking a positive note on the entry of Netflix, Uday Sodhi, Executive VP and Head - Digital Business at Multi Screen Media, said, “I think it will be great in terms of expanding the market, in terms of offering premium service for people who are looking for international content. It will expand the entire digital market by giving more options to them. And will help all of us in this space to improve the overall adoption in the visual entertainment space.”

The Indian market largely consists of players offering Free of Cost (FOC) content. While some of them have paid platforms, their popularity remains as an FOC platform. On asking Netflix about this, the spokesperson replied, “We're focused on making our service better – better personalization, better streaming, better movies and TV shows. It's up to us to win the moments when people decide what to do with their time. While competition will grow, we intend to continue being the industry leader.”

Viacom18's Gandhi goes on with a deeper explanation of the Delivery Mechanism Play. He said, “Globally Netflix consumption is higher via fixed broadband lines and larger screen viewing at home. The OTT explosion in India is happening primarily on the mobile – in fact, the entire digital boom is mobile driven in India. So, long format consumption at high data costs on mobile is a completely different paradigm for them compared to the US. In fact, even the bandwidth on mobile networks is a huge challenge today. This will change with the advent of 4G and fixed line broadband in coming times, but as we speak it is a challenge to overcome.”

International content

Gandhi added, “Netflix has an impressive English content library – both licensed and original. In the Indian context, they would need to go beyond just their English content library, which will be considered niche. There lies the challenge – because majority of the premium local IPs is owned by broadcasters and studios who have their own OTT play – and many with an AVOD play. Yes, Netflix could create originals, but that will take some time. It will be interesting how Netflix looks at their content strategy in India.”

Lastly, Gandhi is of the opinion that Netflix will play the role of a “category expander” for the online video market – as they are the only subscription based VOD service with the kind of content they have. Their price spectrum and the niche content it has will open a new online video market in India, he concludes.

On the other hand, MSM's Sodhi is of the opinion that the Indian audience will accept a paid VOD platform. He said, “Yes the Indian audience will accept it. In fact, we've also launched our paid platform a couple months back. I think what will happen over a period of time is that better and better content will start coming on paid models and as digital payment options improve, more and more adoption will happen for paid digital content. This is a huge ecosystem where we are in the nascent stage. We are now getting into this whole paid content space and I believe in India we will see significant traction with other players coming in.”

The advertisement angle

T Gangadhar

When enquired about what value VOD platforms offer advertisers, T Gangadhar, Managing Director, MEC India, said, “By its very nature, VOD demolishes the concept of appointment viewing. Increasingly, consumers are strapped for time and would prefer to watch their favourite content at their convenience, instead of being forced to watch it at a fixed time. Therein lies the biggest draw for VOD – anytime is primetime. VOD platforms that run advertising tend to have short breaks of one or two ads, hence, clutter isn't an issue either.”

Gangadhar further said that advertisers and media agencies have started actively including VOD platforms in their media recommendations.

The digital medium indeed has constraints of struggling with ad-blockers and skip-ad options. Gangadhar said, “This remains to be seen. The incidence of ad blocking in India is estimated at 10-15% and growing. In the US, VOD platforms like Hulu make it hard to watch content with ad blockers. With the growing incidence of ad blocking, VOD platforms will come under pressure and may consider moving to an ad-free, subscription model. In fact, Hulu is now trying to convince subscribers to upgrade to the ad-free version. This seems to be a direct fallout of ad blocking.”

On asking about the way forward for VOD platforms to stay relevant and achieve breakeven in future, Gangadhar explained, “It's always content. If the quality and spread of content is good – and preferably, exclusive – VOD platforms can hope to stay relevant. The excitement around VOD is palpable in India – much like the advent of Cable and Satellite TV in the early 90s.”

VOD is advertiser friendly

Opining on advertising on the VOD space, Sodhi said, “VOD platforms are a great way for advertisers to reach their audiences because on the digital medium you can target your consumers better and there's far less wastage. So, I think a lot of brands will find it viable to adopt digital. We've seen that because of the original shows that we are making, some of the brands that have come on to it are first-time digital brands.”

On the other hand, Sodhi said, “There is no comparison of advertising on a VOD platform vis-à-vis television.”

When asked about advertisers and media agencies including VOD platforms as part of their plans, Sodhi said, “Absolutely! Most brands today which are visible to large audiences are now doing it because the mobile video market is reaching 150 million phones and therefore it becomes a viable medium for the marketers now.”

Competitors are unfazed

Spuul's Global CEO Subin Subaiah commented, “Netflix's entry into India is a welcome and much anticipated move for the VOD space in India. Their arrival will help grow and educate the market. India, unlike more developed markets, has its own set of challenges – price sensitivity, multiple languages, and poor data connectivity. This is something that all providers, Netflix included, have to contend with. That said, the market and the opportunity are massive and growing. India has typically been a single TV household – it is now transforming into one where ~650M people will have a TV in their pockets by 2019. 60% of all consumption on Spuul already comes from smartphones and that will only increase over time. This kind of size, scale and complexity allows multiple players to co-exist. At Spuul we will continue to execute on our focus of providing the best quality Indian content to the masses. Our upcoming product releases and content additions will reflect that.”

In conclusion, it is a situation where the entry of Netflix has been welcomed by the existing players. It is game, set, go. But the key to a vibrant VOD market actually lies elsewhere: the availability of high-speed broadband. The real game-changer here can be Reliance Jio once it unrolls nationally. That is when the likes of Netflix can churn up the market real big.

Info@BestMediaInfo.com

Info@BestMediaInfo.com