Daybreak - Will the end of password sharing help Netflix get some chill in India?

Episode Date: July 20, 2023

Yesterday, Netflix announced that it will be starting password sharing restrictions in India. The OTT giant will only allow users on the same internet connection to access a particular account. Anybody who is not a part of what its calling "Netflix Household" will not be able to access  content.While move did not come as a surprise since Netflix has already implemented it in many countries like the USA already, that it is using the same strategy in India, a market it has been struggling with for a while, is interesting.Will this new move help Netflix get more subscribers in India?Tune in.RecommendationsNetflix’s last growth marketSpotify adopts Indian habits to avoid the ‘Netflix problem’Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Ramon, Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcasts or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Yesterday, Netflix finally dropped the bomb. And not like we didn't know it was coming.

It announced that it is starting password sharing restrictions in India. From now on, Netflix will only. only allow users on the same internet connection to access a particular account. Anyone who is not a part of what it is calling the Netflix household will not be able to access the content. But isn't password sharing exactly what made Netflix so popular for all these years? So why has the company been looking to restrict the very thing that brought it more users? And for a while, actually.

Two years ago, the Wall Street Journal had reported that users in the United States were getting messages that asked them to verify their identity through a text message. And it's not like Netflix does not understand that password sharing is in the very nature of online streaming. And in fact, it had even accepted that reality. It did give us separate pricing for two to four users. But clearly, that is no longer enough. Because just think about it. The OTT world is getting super competitive. We've talked about what is happening with Geo Cinema, Hot Star and the upcoming Sony Live and Z merger many times on daybreak. And this is in India, of course.

And if you remember last year, Netflix's valuation dropped by 60% as subscriber growth came to almost a standstill. And I'm talking about globally. This year, based on the latest quarter results, even though subscriptions seem to be growing again, Netflix's sales do not reflect it yet. When asked about why this was happening, the two co-CEO, C-EOS and Greg Peters, and CFO Spencer Newman, explained that they are looking at a revenue boost

from its newly launched page sharing, which just started only a few months ago. So it is going to take a few more months to start showing in numbers. But there is still a fair amount of uncertainty. And on Wednesday and Thursday, despite the hopeful quote, quarterly results, Netflix's share price saw a dip anyway.

So I thought today is a good day for us to take a look at how Netflix has been struggling in India for quite some time now. Could this move give a boost to its subscriptions here? To find out, we will have to go back in time a little bit. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Da Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays, and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Friday, the 21st of July. Until more than a year ago, Netflix's subscriber growth was slowing down.

And it wasn't the first time. It had actually been happening since 2020. And of course, its stock price fell at the time by more than 20%. In the latest quarter this year, though, things are actually looking hopeful for Netflix. it does seem like it's back on track to a certain extent. It has seen a rise of almost 6 million subscribers this time. And yet, shareholders seem to be taking it all with a pinch of salt, because Netflix shares dropped by 5% hours after the results were made public.

But like I mentioned before, there is a ray of hope. At least that is what the OTT Giants' leaders are seeing. They've started the page sharing very recently, and they say that it is going to take a few months to reflect in numbers. And so far, if we go just by subscriptions, it does seem like Netflix is catching up. India, meanwhile, has left Netflix a bit confused. Just last year, around January,

when its numbers were not looking good at all, Netflix's CEO, Reed Hastings, had said, and I'm quoting, The great news is, in every single other major market, we've got the flywheel spinning. The thing that frustrates us is why we haven't been as successful in India. But we're definitely leaning in there.

End quote. Now, Netflix's India ambitions are something that my colleague Praveen Gopalekhikrigen has been tracking with great interest. Back in 2018, in the very first edition of his newsletter The NutGraph, he had written about how India is central to the company's plans. That year, too, Netflix had had a big. bad quarter. But it spent a big part of its earnings call talking about its content investments in India. It even did something that it had never done before in any other major market in the world.

And I'm sure you remember this well. It dropped prices and it introduced a mobile only plan. Such a big change in its usual strategy just to win India. Three years later, in 2022, Netflix was still trying to figure out how to crack the market here. Its investment into content in India was bigger than ever before. It dropped prices even more and it introduced another mobile only plan. But clearly, something wasn't working for Netflix here. And there were many theories as to why, but there were some that stood out. Stay tuned to find out. Actually, it is not very hard to see that most of Netflix's problems in India are related to its content and its pricing strategy. And the best place to start is by looking at its paid subscriber numbers as compared to its competitors.

For example, Amazon Prime had managed to get four times the subscribers as Netflix did by late 2020. This was despite the fact that Amazon Prime rolled out its video service one whole year after Netflix India. Between December 2020 to December 2021, both Amazon Prime and Hot Star managed to add subscribers at a healthy rate. But if you looked at the chart, you would see Netflix India was practically flat. Many would criticize Netflix's content strategy in India, saying that it is not local enough or that it is not creator-friendly. But of course, that is changing over time and honestly, there are quite a few arguments against it as well. But I'm not going to get into them today. Now, let us please remember that we are looking back in time. So you would say that Disney Hotstar subscriber numbers were much higher than its competitors

because it had better content. At the time, it had HBO shows like Succession and most of the Marvel movies. All of this gave it an edge, of course. And all this was nothing compared to the biggest weapon that it had and lost later, of course, the exclusive rights to live broadcast the biggest sporting event in the calendar, the Indian Premier League. Netflix could have spent millions of dollars creating the best content for India, but, and I'm sure you'll agree to this, it would be nothing compared to what IPL did for Disney Hot Star every year. Apart from content, there is also the case of pricing. Coming up next. Both Amazon on Prime and Hot Star are priced much lower than Netflix. In early 2021, depending on the plan,

a subscription to Netflix in India was anywhere between $199 to $799 a month. Prime's pricing stood at $80 to $129 a month, and Hot Star, while it was a bit more expensive than Prime, was still lower than Netflix. Together, both content and pricing may explain why Disney Hot Star and Amazon Prime have way more subscribers than Netflix in India. But actually, it doesn't explain at all. Sure, we know that both Hot Star and Amazon Prime are at a lower price. But in 2021, when Netflix was slashing prices to historic lows in India, did you know what Hot Star and Amazon Prime did?

Both of them increased their prices. For the first time in years, Disney Hot Star rolled out its full. first price hike in August 2021, and Amazon Prime followed in December the same year. And interestingly, neither of them offered additional products to customers for the higher price. They just more or less raised prices for the same products. Yes, even after the hike, their prices were lower than Netflix. But it still does not make sense. If all one needed to do to get more subscribers in India was to slash prices as Netflix did, then why did Disney Hot-stop and Amazon Prime go in the opposite direction in the same year.

And if you look at the numbers, it seems like it did kind of work out for them. So is it possible that Netflix is trying to do something around similar lines now with this new change? Maybe. Because there is one thing that we know for sure about Netflix. Again and again, it has shown that it is willing to respond to the market and it is driven by a strong survival instinct. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform.

What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.