What Netflix's successful turnaround means for Indian OTT players

Facing stiff competition from big players like Amazon Prime and Disney, Netflix had a tough time in 2022. Subscribers dropped as people reconsidered their streaming choices due to higher prices and economic uncertainties. But, Netflix has bounced back impressively since then.

Industry leaders believe that Netflix stands out due to its unbeatable content library, a strength that sets it apart from other online streaming services. Netflix’s success is rooted in a keen awareness of the global nature of the streaming industry.

Unlike some competitors, the OTT player stays dedicated to providing premium content rather than getting involved in the “studio businesses”, ensuring a straightforward and clean business model.

In contrast, other platforms might face challenges with content quality, relying on cricket content, which is now facing disruption as it is being provided for free by Jio.

In the third quarter, Netflix recently added nearly 9 million new subscribers worldwide, exceeding the various forecasts. The OTT platform has projected a similar level of subscriber additions for the current quarter. Netflix's global subscriber count stood at approximately 247 million.

"Over 70% of our members are now outside the US and we offer more and more great, authentic, local stories to further satisfy them and grow engagement in these regions. We are now producing or co-producing in over 50 countries and languages with the goal of delighting local audiences. In Q3, we saw big hits in every region and across multiple genres," Netflix said in a regulatory filing.

It also went on to point out that given that the cancel reaction continues to be low, exceeding Netflix’s expectations, and borrower households converting into full-paying memberships are demonstrating healthy retention, the OTT platform’s revenue remains positive in every region when accounting for the additional spin-off accounts and extra members, churn and changes to its plan mix.

The OTT player’s immediate priority is building its ad membership so that Netflix becomes an essential buy for advertisers, which is key for advertising to become material to its business.

Strategies contributing to Netflix’s successful turnaround

Karan Taurani

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital emphasised that Netflix's subscriber growth has been appealing for a couple of reasons. Their base was relatively low due to a decline in the past year, influenced by global changes and price hikes in certain markets.

“Despite concerns about password sharing leading to a decrease in paid subscribers, Netflix turned this challenge into an opportunity. They introduced an innovative approach where people started taking separate subscriptions instead of sharing passwords. This unique strategy has set Netflix apart and it's a major factor behind their high subscriber growth,” Taurani said.

"While other OTT platforms might consider replicating this approach, the success of such initiatives depends on the strength of their content. Netflix stands out with a diverse and compelling content library, which is crucial for sustaining such practices. Other platforms may lack the content clout, relying on cricket content facing disruptions or having aggregator-led content that may not be subscription-worthy," he added.

What lessons can other OTT players learn from Netflix's successful turnaround?

Taurani emphasised that in the realm of online content, it's not just about what you offer but also how you deliver it and enhance user experience. Netflix excels in both aspects, especially in user experience. In markets like India, most paid subscribers for OTT platforms come through partnerships and original equipment manufacturers (OEMs). However, Netflix stands out as it relies less on these avenues, showcasing its resilience.

“Netflix ensures a premium selection of content, both in terms of commissioned shows and overall offerings. Although the OTT business is intricate and experimental, Netflix maintains a consistent standard. The challenge arises from disruptive forces like Jio Cinema, which initially provided premium content for free, impacting the subscription-based revenue model for other platforms,” Taurani said.

“The struggle extends to other OTT platforms facing challenges in increasing Average Revenue Per User (ARPU), relying heavily on distribution partners like OEMs, smartphones, and telecom partners. This dependency limits their direct subscriber base and distribution flexibility. Additionally, escalating content costs pose a significant hurdle, especially when revenues are not keeping pace,” he added.

Furthermore, he said that the OTT landscape is further complicated by the competition for advertising revenue, with e-commerce and other digital advertising segments vying for attention. Despite cheap data and several years in operation, many platforms find it challenging to break even, scale up revenues, or achieve profitability. The entry of Jio Cinema with access to a vast smartphone subscriber base intensifies the competitive struggle for other platforms. Achieving financial sustainability in this dynamic market remains an uphill battle for many.

Password sharing crackdown: A viable approach for other OTT platforms?

Taurani pointed out that other streaming platforms might find it challenging to prevent password sharing. This difficulty arises because they may not fully understand how significant their content is to consumers' lives as compared to Netflix, wherein it is only perceived to be a content player.

“It is not a player who is into other segments of business. It is not bundled with any other sort of e-commerce or any other offering. Moreover, it is not an aggregator or ad-based model or a sports-driven model. It is a pure content-driven model which is based on web series, films and other kinds of content with the offer. So I think that's a clear differentiation point that Netflix has, unlike other OTT players. Moreover, its user experience is by far the most superior as compared to any other platform. So these are a few things which stand out for Netflix versus peers, which is why it's very tough for peers to replicate this kind of approach,” he added.

Furthermore, Taurani said that a platform like Netflix, excels in guiding production houses strategically rather than focusing on media delivery and content production, which are not their core strengths. Their expertise lies in using extensive data access to understand customer behaviour—what content is watched, for how long, and what is preferred or disliked. This vast data, derived from a large subscriber base, allows them to guide production houses strategically. For instance, they can choose projects that align with their platform and cater to their specific audience.

“One significant advantage for platforms like Netflix is their ability to analyse data trends, such as identifying content that viewers tend to switch off from within the first five minutes. This insight aids in selecting projects that resonate with their audience preferences. The scale of their subscriber base, in the tens of millions, enables them to grasp broader trends that smaller platforms might miss,” Taurani said.

“While these OTT platforms may outsource content creation, especially for web series, they may retain ownership of intellectual property (IP). This approach suits them well as their forte lies in strategic decision-making rather than the hands-on production process. Platforms like Netflix and Disney focus on ensuring a balance between the content they produce and the preferences of their customer base, making strategic choices in genres and content that align with their audience profiling,” he added.

How does Netflix stand out among its competitors?

Taurani highlighted that Netflix stands out in the realm of OTT platforms, particularly in user experience. Unlike many others that focus on specific content niches or language preferences, Netflix is unique in its broad-based approach. While platforms like Hotstar, SonyLiv and Zee5 thrive on catch-up TV content, Netflix transcends genre and language limitations, offering a vast array of content.

“In contrast to platforms associated with specific content types, Netflix remains language and genre-agnostic. Its extensive variety caters to diverse preferences, providing the flexibility that withstands market fluctuations. What sets Netflix apart is its innovative approach, such as introducing an ad-based model and a low-cost subscription plan in the United States. These strategies aim to foster sustainable growth, recognising the challenge of maintaining a robust subscriber base as market penetration levels off,” Taurani said.

“Netflix's success is attributed not only to its strategic innovations but also to its established brand recall and premium content offerings. Building a sizable, loyal customer base without the support of sports, catch-up TV content, or the backing of a prominent production house or e-commerce entity is a noteworthy achievement that takes considerable time. Netflix's advantage lies not just in its business model, which could be replicated, but in the substantial brand recognition and customer base that has been meticulously cultivated over the years,” he added.

On being asked that unlike some tech giants like Amazon and Apple, Netflix lacks an ecosystem integration approach. How does Netflix's ability to navigate the gap between content investment and revenue generation differ from other OTT platforms that might prioritise ecosystem integration, and what are the advantages and disadvantages of each approach?

Taurani commented, “Apple boasts a robust hardware ecosystem, while Amazon is a powerhouse in the e-commerce domain. Each has its own set of advantages and drawbacks. Their strength lies in offering bundled services, not just limited to an OTT platform but extending to bundled e-commerce or iOS usage.”

In contrast, Netflix lacks such ecosystem advantages. However, when evaluating Netflix independently as a video content platform, it excels in terms of content quality, subscriber base for pure video content, brand recall, and Average Revenue Per User (ARPU). Despite not having access to a broader ecosystem, Netflix stands out due to the superiority of its content, Taurani said.

The key factor here is that content is paramount. While partnerships within ecosystems, particularly in distribution, are crucial, Netflix's global B2C customer base is substantial, largely built through its own efforts, platform user experience, and commendable content. To scale up further, strategic partnerships for distribution in the ecosystem without compromising prices or platform quality would be beneficial. This approach could lead to a win-win situation, allowing Netflix to expand its reach effectively, he added.

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