Netflix, an online video content provider, serves about 80 million subscribers globally spread across 190 countries. Netflix was founded in 1997 by Reed Hastings and Marc Randolph. It is a network of internet streaming showing TV shows as well as movies on different internet-connected devices including computers, TVs, and mobile phone devices.
Netflix co-founder and CEO Reed Hastings announced his plans to conquer the world in January 2016. During the 2016 Consumer Electronics Show in Las Vegas, Hastings revealed that Netflix added 130 countries to its list of 60 countries where Netflix services were already available. One of the nations that the Internet streaming media provider now offers its services in is India. India is one of the largest markets for Netflix to explore with the subscriber base for mobile users in India crossing the one billion mark in 2015. However, it is prudent to note that a majority of the Indian population has not been familiar with online streaming as they have been getting their video content from cable operators and Direct to Home (DTH) service providers.
Growing from 400 million internet users in July, by the end of 2016 India was having an Internet subscriber base of about half a billion. The majority these mobile subscribers are youths. This young generation is comfortable watching TV shows and movies on the phones because of the low broadband penetration as well as the lack of reliable Internet groundwork. Looking at these statistics, Netflix’s move to venture into India as thus raises questions of if the step is a sure win or there are challenges that they have to deal with before they can celebrate. Questions mainly rose six months after Netflix launched in India and the buzz surrounding the launch came down.
India is immensely essential for Netflix in the long haul since it is one of the most grounded Internet markets (on the planet) and Internet TV is the future. The following 10 to 20 years around the globe will be a period of awesome change with the development of Internet TV, as brought out by Reed Hastings, Netflix CEO. India would be a vital market in light of the fact that there are (now) more than 300 million mobile broadband clients in India and every last one of them is a potential subscriber to Netflix. For your reference, Netflix right now has a little more than 94 million subscribers worldwidewith about 40 million subscribers coming from outside the US. Following Netflix’s launch in India, there have been questions challenging the move by the Internet streaming media provider. The challenges that required the company’s attention included whether Netflix would be able to endure and rise above problems for them to meet the needs of the consumers in India. There was also need to address whether the Indian market was well seasoned to adapt accordingly to the more sophisticated models of subscriptions such as the subscription video on demand (SVoD). The other issue that required the attention of the global Internet streaming media provider was how they were going to get a sizeable share in the Indian market as the country was still struggling with fundamental infrastructure issues including low penetration of Internet.
Netflix Strategic Analysis
- SWOT Analysis
Looking at Netflix India’s SWOT analysis, it is well positioned to establish itself in the Indian market.
To begin with strength, Netflix India boasts of content, experience as well as tried and tested subscription plans. Netflix offers Western and International content on its platform, and thus it comes to the Indian market with an already sorted out catalog. Properly utilized, this is an advantage that the online media provider has over its competitors and if well tapped will guarantee them of a competitive edge.
The weakness of Netflix in India could be the fixed cost of subscriptions as well as internet dependence. The subscriptions are fixed, and for them to be able to gain an advantage over their competitors, they might have to adjust the subscription rates accordingly. The fixed cost of subscriptions makes it difficult for Netflix to adjust the figures accordingly so as to favor or rather align itself with the needs of its target audience.
Netflix India also boasts of opportunities as it has its original content. Netflix produces original content, and this will come a long way in seeing to it that it establishes itself in India as it majors in the production of local and regional content for their Indian viewers. Being able to produce it’s own content goes a long way in enabling Netflix cement its position in the Indian market. With the ability to produce its own content, Netflix is able to narrow down to the needs and demands of its target audience by producing and delivering content that are relevant to the Indian market.
The challenges that Netflix faces in India include having to edge already established competitors such as Eros Now and Hot Star. Other than competition, Netflix also faces the threat of changing technology. Netflix has a major threat in having to outdo renowned competitors who have better understanding of the Indian market considering that they have operated in the market much longer. Other than the threat from the competitors, Netflix is also facing the threat of changing technology. The technology keeps changing from time to time and so for Netflix to maintain its position as a online video content provider, it has to align itself with the technology innovations and ensure that it is not left behind as things change.
- Five Forces and Value Chain Analysis
The five and value chain framework is essential in analysis Netflix India and finding out its business strategy development.
Threat of substitutes:
The first force is the threat of substitutes, and in India, the value is high considering the established competition such as HOOQ, Eros Now and Hot Star that Netflix has to edge. These are companies who have cemented their position in the Indian market and for Netflix to be able to compete with them fairly and even edge them out, and then they need to develop a unique approach that will distinguish them from the competition. One of the unique approaches it can employ is the production of local content for the Indian market.
Rivalry is the second threat that Netflix will had to deal with in India and rivalry is high. Rivalry is high mainly because of the availability of most players who are already established in the market and are offering the similar services. Rivalry is both good and bad as it ensures that you fight to remain relevant in the market. To cope with rivalry, Netflix has the option of getting into partnerships with other established firms that are already established in the Indian market.
Power of supplier:
Supplier power is also a force, and it is also high in India. Supplier power is high in India because in offering Internet media streaming services, content is key. The content in this case includes the local cont6ent that Netflix will have to produce so as to keep in touch with its target market. Netflix has the opportunity to work with Bollywood and ensure that it provides enough local content to for its Indian market.
Power of buyer:
Buyer power as another force is also high. The buyer power is high because of the availability of several options for the consumers. This also directly links to the availability of established competitors offering similar services thus leaving viewers with a broad option from which to choose from on what to consume.
The final force is the barriers to entry. Again, this is attributed to the existence of established competitors who have covered every aspect of the market leaving little for exploitation by new entrants. The force of new entry hinders Netflix entry and subsequent establishment in the Indian market has they have to pump in enough resources so as to be able to be at a fair playing field with its established competitors.
The inbound activities of Netflix India entail its accumulation and presentation of content to its subscribers. Netflix is in a position to carry his out based on its rich content base. Owing to this, Netflix is strategically placed to meet the demands of the Indian market.
Netflix India has put their effort in producing local content for the Indian market. Other than the production of local content, Netflix can also provide its Indian Market with the rich video content that it provides to its global subscribers.
The outbound activities of Netflix India are producing video content to its subscribers. Netflix provides high quality video content to its global subscribers and owing to its excellent service delivery, it has been able to grow itself and build its international reputation accordingly.
Looking at the value chain, Netflix has to maintain its delivery of high-quality services for it to build its reputation and hold up to the expectations of its target market. They also have to ensure that they maintain their delivery without bringing down the quality of service. After working on the activities of delivery and working on enhancing delivery, they also have to look into how they implement their strategies. As they embark on meeting and fulfilling the needs of the viewers, Netflix will have to put into consideration that the market has a deep touch to local and regional content. As thus for them to establish themselves, they have to diversify and offer more local content to accompany the western culture and international culture that they already have in abundance.
For Netflix to roll out its international expansion program, significant financial costs were incurred, and in a way, this threatened its existing strategy. The move brought down the impact of Netflix profits to a small margin, however, it developed a basis for broader changes in the long term. To further promote itself in India, Netflix incurred more costs as it battled to increase its brand visibility. The colossal spending in bids to expand Netflix India had effects on the company’s bottom line particular considering that they had to also incur more costs in developing original content for the local audience.
The expenditure did not end at creating content and promotions as Netflix had to get into partnerships with local firms including service providers as well as paying for exclusive access to original programs, hosting as well as technology costs that define its service delivery in India.
Netflix’s subscription plans also play a role in securing financial stability in India. In the first month, Netflix offered a free trial for first-time users to the Netflix India website before they purchased subscription packages after the expiry of the one month trial. The subscription costs for Netflix range from $7.50 to $12 per month and the payment s can be made through a variety of options including credit cards, PayPal and debit cards. In the long run, this simplifies payment processes for the consumers making them not opt out for the complex means they have to go through to make payments.
For Netflix to be able to establish itself accordingly in India, there are certain strategies that they need to implement. The first one that they need to put into practice I pursuing market penetration. The Indian market already has established competitors, and for Netflix to distinguish itself, they have to work on providing the best services and lowering their prices to gain an edge over their competitors. With the option of pursuing market penetration, Netflix also can aim their focus to coming up with original content that the Indian consumer looks forward to consuming. Creating its content will enable Netflix India to maintain its competitive edge without having to incur heavily on licenses and purchases for hired content.
Pursuing market penetration and creating original content will not only see Netflix grow, but they will also have to deal with a few adverse effects before they can yield the most from this option. In pursuing market penetration, they will have to somewhat bring down their prices in a bid to woe more subscribers. Lowering costs yet they are only trying to establish will mean that they will have to slice their budget until it is slim enough for them to accommodate. This brings in financial problems as penetrating the market also requires that they better their services. The same applies to creating original content. Netflix India will have to form a base from which it can easily support and foresee its unique content creation. In as much as it could be cheaper, diversification will not be readily applicable because then it will require that they come up with a lot of original content and that is not practical for a still company seeking to establish itself.
The other option that Netflix India can explore is the creation of partnerships and enhancing as well as continuing its high availability in distribution strategy. For Netflix to be able to neutralize all the five forces rating high, they will have to consider getting into partnerships will local platforms for them to come up with a perfect hardware platform for the Netflix software. Partnerships, in this case, would range from service providers to mobile phone manufacturers as well as production houses. The cons for this option include financial costs. To be able to maintain high availability distribution strategy and creating more partnerships will mean that they will have to inject cash into programs that are not directly linked to their revenue collection. The partnerships may also mean that they will have to work with their competitors.
Considering the numerous challenges Netflix is facing in India in its bid to stabilize and establish itself; their main aim would remain to increase their margin in regards to their competitors. To be able to achieve this and remain stable, pricing should be their last resort. They should consider using pricing as the last resort measure as they work on increasing the margin. Not affecting pricing as much as possible will see to it that their clients get accustomed to their pricing list and that they can continue to run their services accordingly without having to deal with more challenges of service delivery brought about by diminishing finances. Borrowing a leaf from the competitors, Netflix would opt to avail a portion of its catalog to viewers for free but keep the trending and newest content for access to those who pay for it. Similarly, Netflix can engage in adverts to improve its revenue by attracting more viewers.
India is a very complex market in regards to America where Netflix has efficiently established itself. Netflix has been able to make its presence felt all over the world through the adoption of strategies that are aligned with its consumer’s preferences as well as tapping into some opportunities thus propelling it way ahead of its competitors. Looking at the case of India, Netflix had less content compared to what its competitors in India had. Other than content, Netflix India had better SVoD service in the country. It was offering better quality as well as a broader catalog of foreign content, unlike its competitors who were majoring on local films and series done in vernacular languages.
The gradual shift of Indian market to prefer international content and the western culture thus worked in favor of Netflix. To sum it up by not discriminating and dividing the viewers, Netflix resorted to creating local content. This was in a bid to localize itself and be able to come up with more original content. Other than this, providing local content as one of the main ways set to be explored, Netflix must roll out huge investments in India and consistently grow its market size for it to register long-term profits.