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Why Netflix needs India, now more than ever

Earlier this week Netflix CEO Reed Hastings announced that the firm will be spending US$420mm creating content for the Indian market. The figure positioned them well above competition, and even above its own past investments. While the allure of establishing itself in the India market is obvious given the sheer size of the addressable market, the India growth story comes at a critical time and turbulent time in the firm's history.

So what's going wrong with the streaming giant? Well, for one it is piling up an extraordinary amount of debt, as it burns cash to create its own content for its platform. As traditional partners including Disney (which recently launched Disney+ and has already shot to 10mm+ subscribers, growing at 1mm subscribers per day) launch their own platforms and take their (highly popular) content with them, having a library of their own content becomes even more important for Netflix. The firm raised another 2.25 billion of long term debt this year, and is set to burn through most of it by end of year, taking its total debt levels post the US$12bn mark.

The competitive landscape is also intensifying as partners like Disney part ways to launch their own platform, taking top brands like Marvel, Starwars, and Disney with them. The departing content libraries launching on their own at fairly attractive prices increases pressure on Netflix to now justify the higher rates it charges its developed market's customers (dev ARPU up 11%) as they get lower third party content. It also increases the pressure on the firm to retain talent as the other streaming platforms compete for the same top employees.

In this murky background, India emerges as potential savior. Growing smartphone penetration combined with cheap internet plans creates a fertile ground for streaming platforms to grow. A BCG study places the size of the video on demand market to reach US$5.0bn over the next four years. As growth for the firm begins to decelerate elsewhere, the India growth story will be of great interest to investors.

The firm has already demonstrated its willingness to bend its earlier beliefs of not reducing pricing, when it launched its 199 mobile only pack for the price sensitive Indian consumer. It has also been investing consistently to create India focused content, which the audience has taken rather well. With Disney most likely to launch in India via the Hotstar partnership route or some sort of bundling arrangement with Hotstar, the competition in the Indian streaming space is definitely poised to go up a few notches.

The 3000+cr investment is Netflix's way of trying to preserve and strengthen its footing in one of its most promising end markets amidst increased pressures elsewhere and a looming threat of greater competition.

We wish them well, on their journey to deliver more binge-able content to the Indian consumer!


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