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Amazon and Netflix pitch cricket in Indian media push

Simon Mundy
Key Points
  • Amazon and Netflix are creating expensive new Indian content in the hope of capitalizing on the explosive recent growth in smartphone penetration and data consumption.
  • They face stiff competition from India's established television companies.
  • Netflix and Amazon are unlikely to be able to match the sheer volume of local content offered by in-country rivals.
Reed Hastings, CEO, Netflix
Getty Images

Its plot is as Indian as they come, featuring murky dealings behind the razzmatazz of a hugely popular cricket league.

But the drama series "Inside Edge," launched by Amazon to rave reviews in June, is proof of a rising foreign presence in India's fast-growing online entertainment business.

U.S. giants Amazon and Netflix are both ramping up investments, creating expensive new Indian content in the hope of capitalizing on the explosive recent growth in smartphone penetration and data consumption. Yet they face stiff competition from India's established television companies, which are investing in online platforms of their own — and whose executives warn that the U.S. groups will struggle to apply their standard playbook to frugal Indian consumers.

"Inside Edge" was "certainly more expensive" than the "much lower quality" television shows previously produced in India, says James Farrell, Amazon's head of video content for Asia-Pacific.

It is available, along with a suite of international and Indian films, as part of Amazon Prime — the service that also offers perks such as faster delivery of products. Prime membership costs $99 a year in the U.S. — but less than a tenth of that in India, the lowest rate offered in any market, as Amazon tries to lure viewers who could become loyal customers of its broader e-commerce business.

"Now more than half our new customers are coming from the video service . . . and the Amazon universe is pretty fantastic once you get in," Farrell says.

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The aggressive pricing is part of Amazon's intense expansion drive in India, even at the cost of heavy operating losses for the foreseeable future, after it was relegated to a marginal role in China. The U.S. group has committed $5 billion in funding to its Indian entity, which is in a battle for supremacy with Indian e-commerce unicorn Flipkart.

Netflix has also been building its presence in India since launching there in January 2016. This month, it announced plans to film two new Indian drama series: one, like "Inside Edge," focused on cricket and corruption, and a second about a female homicide detective in New Delhi. It had previously bought the exclusive streaming rights to wrestling movie "Dangal" and historical epic "Baahubali 2," two recent releases that are the highest-grossing Indian films in history.

But Netflix, which, unlike Amazon, has not slashed its subscription rates, will find India an utterly different proposition to the U.S. and other developed markets, says Sudanshu Vats, chief executive of Viacom18, one of the country's largest television networks.

Netflix's basic monthly subscription charge of $8 represented a huge discount from traditional television pricing in the U.S., Vats notes — but the opposite is true in India, where monthly cable television charges are typically less than half the cheapest Netflix option.

"If they continue to have global pricing in India," Netflix might attract a maximum of 3 million subscribers, Vats predicts. "That's still a very small number in the Indian context; it's scratching the surface. It's a very good business model, but it doesn't scale."

Jessica Lee, Netflix's head of communications for Asia, says that it is targeting "the top end of the market" with its pursuit of "strong, quality titles."

"At this point, we are keeping pricing fairly consistent across the world ... India is a massive market and there's still a big potential with early adopters, world travelers," she says.

While they have attention-grabbing "marquee shows," Netflix and Amazon are unlikely to be able to match the sheer volume of local content offered by in-country rivals, says Uday Shankar, chairman of Star India, which claims 650 million monthly viewers for its 58 television channels.

"We at Star create almost 18,000 hours of content every year," he says. "Clearly that's not a model that [Amazon and Netflix] can sustain very easily.

"Star has rolled out its own digital platform, Hotstar, offering a huge library of films and drama series from the U.S. and India for about $3 a month — as well as a free, advertising-supported service with more limited content.

For now, Hotstar's growth is subsidized by Star's traditional television services, and Shankar sees little chance of the former overtaking the latter in the foreseeable future. Perhaps 1 million to 2 million Indians are currently willing to pay for online content, "and I struggle to think that number could jump to 20 million or 30 million in the next five years," Shankar estimates.

Many Indians, he says, are highly conscious of the cost of mobile data usage — meaning that "they don't even consider YouTube free — because it costs them money for data."

Data consumption is surging, however, amid a price war in mobile services instigated by Reliance Jio, backed by India's richest man, Mukesh Ambani. Jio claims that in the six months since its September launch, it helped drive national mobile data consumption from 200 million gigabytes to 1.2 billion per month, with Jio subscribers alone consuming 1.7 billion hours of video each month.

For some in the industry, the intensifying competition is unalloyed good news. Eros International, a Mumbai-based film distributor, has seen an opportunity to take advantage by pursuing sale talks on its library of more than 3,000 films, at a reported asking price of $1 billion. It has made contact with potential buyers, including Apple, offering the U.S. company an opportunity to expand its catalog of Indian film content, says a person with knowledge of the discussions.

Returns for the mainstream media industry have long been held back by what consultants at Deloitte described in a recent report as "rampant piracy." They estimate that the problem costs the sector Rs190 billion ($3 billion) a year, with films downloaded in their millions from websites based mostly in North America. Many Indians prefer to buy pirated content on memory cards from local merchants, to save on data costs.

"Piracy is a big problem, but you have to live with it," says Sushilkumar Agrawal, chief executive of film distributor Ultra Media. "We're not going to go into the street and fight with people, and this is at the bottom of the police's list of priorities."

Still, Agrawal views the U.S. groups' arrival as an exciting potential source of new funding for Ultra's expansion into production. "Amazon are paying good money to the content owners — and they're going for new productions, so we have the opportunity to produce more and more content for them," he says.

But despite the ever-expanding feast of online video options, he warns, this industry faces a long struggle to build awareness and supersede traditional television, in a heterogeneous developing country of 1.3 billion people.

"Even in Mumbai, some people don't know how to do anything except switching the channel — so forget about connecting a smartphone to the TV," he says.

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