Keep it simple. As simple as pasta and tomatoes. That, in a nutshell, is the philosophy followed by Reed Hastings, the billionaire founder and co-CEO of Netflix. Here’s the other, complementary part of his philosophy, for life and work: Do a few things but do them extremely well.
Hastings knows a thing or two about doing something extremely well. And with maximum impact. After all, streaming giant Netflix, No.16 on Fortune’s list of the World’s Most Admired Companies in 2020, with revenue of over $25 billion, has revolutionised the entertainment industry in its over two-decade-long existence. It has introduced viewers to varied content in over 190 countries and has also managed to pick up a few Oscars and Emmys along the way.
In fact, one of its most recent wins was for a show from India, Delhi Crime, which won the International Emmy for Best Drama Series. Not surprisingly, the Netflix founder’s eyes light up when he talks about India, which the streaming giant entered in 2016. “We’ve been growing every year. We’ve been just building our team, developing content, figuring out what works, whether that’s Sacred Games, or AK vs AK, you know, just lots of different types of content,” he tells Fortune India over a Zoom call from a ski lodge high atop the mountains in Utah.
For context, AK vs AK, an edgy thriller directed by filmmaker Vikramaditya Motwane, has now been watched in 40 countries, and subtitled and dubbed in more than 30 languages.
Crime thriller Sacred Games, also by Motwane, was Netflix’s first big global success coming out of India. Describing the night before the first season of the series dropped in June 2018, Motwane says: “What was driving us sleepless was not that it was our first original, but the fact that suddenly you’re opening up to a global audience. For the first time, you’re not looking at the box office, but at the organic reactions of people, and that is when we realised this has gone broader than any of us could ever imagine.”
It was his, Netflix India’s—and probably the country’s—first original OTT (over-the-top) series of that scale in a local language. And it helped the Los Gatos, California-based OTT giant, with over 200 million subscribers, garner a wider gamut of audiences. This is because, says Hastings, while most people around the world want half the shows to have stories they can identify with, for the other half, they get excited about content that is challenging and fresh like “watching a Japanese or a Korean show.”
Even on the content piece though, “we’ve had a tremendous amount of learning in the last five years. What we’ve realised as a service is that the Indian audience is ready to experience all kinds of stories, formats, and genres. And in any country, the core of our strategy is variety and diversity,” says Monika Shergill, vice president, content, Netflix India, who was ranked No.47 on the 2020 Fortune India Most Powerful Women in Business list. There is no winning formula for streaming as a medium, she points out. “If you play very safe, you’re not doing justice to your audiences who deserve new storytelling,” says Shergill, who has had stints at Zee, Sony, Star, and Viacom18. Given that Netflix is targeting its next 100 million subscribers from India, her current focus is to put out at least three to four original Indian titles every month.
To her, a show like Delhi Crime exemplifies the kind of quality and storytelling Netflix stands for. And this kind of content, says Shefali Shah, the lead actor of Delhi Crime, allows creators to push boundaries, and think out of the box. “With streaming services like Netflix, a lot of stories are being explored and told,” she adds.
Ashwin Suresh, founder of Pocket Aces, the company behind the popular show Little Things, one of the early acquisitions of Netflix India, agrees with Shah but also sounds a cautionary note: With the emergence of OTT platforms as a popular medium and everyone “trying to create a tonne of content”, quality could take a beating, he says.
But Hastings isn’t worried about achieving that balance between quantity and quality. “The more things you try, the more you learn,” he says. “And your rate of quality improvement depends on how many swings you can take. So, we’re doing more quantity, and that’s helping with the quality.”
As far as Netflix’s India foray—around five years ago— is concerned, Hastings says the timing of its entry was “fortunate”. Thanks to Reliance Jio and its cheap data plans, India went from being one of the world’s most expensive data regimes to the most inexpensive in just four years. “The transformation of the Indian Internet is phenomenal. In hindsight, our business probably could not have worked five years ago,” he says.
Another learning for Netflix was that unlike Americans and Europeans, a large chunk of Indians consume content on mobile devices. To reach these consumers, Netflix launched a mobile-only subscription plan at ₹199 a month, far cheaper than its standard plan, in 2019. On the back end, it had to adjust the bit rate of videos based on factors such as the speed of the Internet connection and the device to ensure a seamless experience, says Abhishek Nag, director-business development, Netflix India
So far, Netflix appears to be on the right path. According to app analytics platform App Annie, in 2020, consumers in India spent an average 4.6 hours per day on their mobiles as compared to 3.3 hours in 2019. Even its global competitor, Amazon Prime Video, recently rolled out a “Prime Video Mobile Edition”, in association with Airtel. “Given high mobile broadband penetration in the country, the mobile phone has become one of the most widely used streaming devices,” Jay Marine, vice president, Amazon Prime Video Worldwide, had said in a statement at the time.
In fact, that’s all part of Amazon’s bigger plans for India. Amazon founder and CEO Jeff Bezos, on his visit to India last year, had said the U.S. company will double down on its investments in the country as “there is nowhere that the streaming service is doing better than India”. The likes of Disney+ Hotstar, Apple TV+, and local players like MX Player, ZEE5, and ALTBalaji, among others, too, have their eyes set on what is touted to soon become a $5 billion video-on-demand market. And unlike Netflix, some of them have high-volume propositions like live sports programming and news.
According to consultancy giant PwC’s latest Global Entertainment & Media Outlook 2020-2024 report, India will be the fastest-growing OTT market at 28.5% CAGR for the 2019-2024 period against 13.4% worldwide and is on its way to becoming the sixth-largest market by 2024. The next five years present an enormous growth opportunity for subscription-based streaming services in the region, the report says.
In the current context, with people spending more time at home because of the Covid-19 pandemic, OTT players have seen a surge in users. The number of OTT players in the country has also jumped from nine in 2012 to over 30 now. It helps that India now has the second-highest number of Internet users after China, with around 570 million users and a growth rate of 13% annually, according to consulting firm Ernst & Young.
Competition for this fast-growing pie is inevitable but Hastings, who is known to have called “sleep” Netflix’s only competitor, isn’t overly concerned. He does admit, however, that YouTube, which has been in India for more than 10 years, is indeed its biggest rival. YouTube’s dominance is borne out by data from App Annie. In 2020, YouTube garnered 26.4 average hours per month, followed by MX Player at 7.8 hours, and Netflix at 7.4 hours. Both Disney+ Hotstar and Amazon Prime Video reported close to 4.5 hours.
According to Karan Bedi, CEO of the Times Internet-owned MX Player, “the Netflixes and the Disneys of the world” are just focussing on the top 2%-3% of the market. “There’s this huge gulf of potentially 400 million-500 million people—of whom we already touch more than 200 million—who want to watch entertaining, quality content. We have a fairly sizeable ad-supported business and our revenue probably is higher than most others in the market,” he says.
On the other hand, the premium content space is being targeted by the likes of Lionsgate Play (from Starz, a global content distribution platform that has stakes in over 17 channels in the U.S.), one of the recent entrants to the OTT space in India. Rohit Jain, managing director, South Asia and Networks-Emerging Markets Asia, Lionsgate, says that the Indian market is underserved in terms of premium content. “There are only two-three big players with premium content in India. In most markets, 7-10 premium platforms are present,” he says, adding that their Hollywood slate is available in Indian languages and that they are already developing a slate of Indian originals.
Then there’s been a fair bit of collaboration among local players as well, such as ZEE5 and ALTBalaji sharing content on each other’s apps. Lionsgate Play, too, is available on Apple TV as a separate channel.
But Netflix seems unperturbed. “I think it’s important for all of us to feel excited about the competition and not feel anxious about it. Because if we really have to tell best-in-class stories and bring world-class entertainment to India, it will only happen if we really push the appetite of people,” says Shergill. “And it’s so important to have this competition because we are taking the entire industry up in terms of quality.”
Globally, Netflix enjoyed the first-mover advantage by being the first company to start DVD rentals by mail in 1997. In 1998 it launched netflix.com as a DVD rental and sales site, and transitioned a year later to a subscription model, and then to streaming, changing the way people consumed content forever. It added 239,000 subscribers in its first year of existence and reached the one-million mark for subscription rental services by 2003. But the world has changed in the two decades since. For example, within the first five months of its global launch, Disney logged 50 million subscribers. It took Netflix’s streaming service, launched in 2007, seven years to cross that mark.
What makes Netflix’s fight for a share of the Indian pie more difficult is the price-sensitive nature of the market. Its subscription plans are among the more expensive in the country. For example, Lionsgate Play launched at ₹699 a year; Amazon Prime Video is priced at ₹999 per year, while Disney+ Hotstar comes at an annual price of ₹399 for a VIP subscription, and ₹1,499 for a premium one. In contrast, Netflix’s monthly plans start at ₹499, and go up to ₹799 for its premium service.
Nikhil Dalal, senior consultant at RedSeer, says while an all-in-one service like Amazon Prime (the subscription includes access to Amazon Prime Music and free next-day delivery of products, among other services) can afford to be price competitive, Netflix being a purely OTT platform with premium content does not have that latitude. “People in India have deep pockets but the willingness to pay is still not there,” he says.
But what can get tight-fisted Indian consumers to pay is the quality of content on Netflix. It has been investing in originals since its first attempt with House of Cards in 2013. In India, Netflix has invested ₹3,000 crore on original programming in the last two years and plans to continue in the same vein. “The big focus for us is pleasing our members. Particularly in Covid-19, if we had a chance to buy movies that might have gone to the theatre, that made sense,” says Hastings. “We want to spend on behalf of our members, to provide them content that they love. And if we do that, we grow. [But what] we’re most excited about is developing our own content. And that’s been a big success for us.”
The platform has also been successful in tapping into India’s love for films, with the country having the highest viewing of films on Netflix globally; last year, 80% of Netflix India subscribers watched one film every week. Srishti Behl Arya, Netflix India’s director-international original film, wants the company to be the home for films in India. “There’s one beautiful line about Netflix: My Netflix is not your Netflix. We hope to ensure that you get the maximum pleasure of watching it. And if you’re not programming for one person, then you have to be open to different points of view,” she says.
In 2020, Netflix had 28 originals (17 films and 11 shows) from India, and she hopes to maintain a similar run rate through 2021. In comparison, Amazon Prime Video had 34 originals, while Disney+ Hotstar had 13. To ramp up its numbers from India, Netflix has partnered with production houses such as Karan Johar’s Dharmatic Entertainment, after having worked with Red Chillies Entertainment and Viacom18 Studios, among others, in the past. Amazon Prime Video, similarly, has long-term content deals with Yash Raj Films, Dharma Productions, Salman Khan Ventures, and T-Series, while Disney+ Hotstar can draw premium content from Disney and HBO. Local players like ZEE5, too, are fast catching up, especially on the back of regional content. “Thanks to cheap data plans and affordable smartphones, OTT is no longer a metro phenomenon since it has become the primary source of entertainment for consumers across tier 2 and [tier] 3 cities. We grew 200% in 2020, and our viewership came from across the country,” says Manish Kalra, chief business officer, ZEE5 India. His company’s ability to deliver content in almost all Indian languages—both the UI and UX are purposed in over 12 Indian languages—has proved to be a strength.
Netflix, too, has upped its regional game, with successful titles like Ala Vaikunthapurramuloo, Maniyarayile Ashokan, Andhaghaaram, and Kappela that featured in the top 10 most-watched lists around the world. “There is a very strong affinity for local languages in India. Like [Oscar-winning Korean director] Bong Joon-Ho said for Parasite, don’t let that one-inch-tall barrier of subtitles take away the experience that you’re likely to have,” says Arya. “And as we learn more, we’ll be probably better at predicting what it is that we should be doing as originals.” Though Netflix doesn’t have a studio in India, “we’re a full studio”, says Hastings. “We’re still renting sound stages,” he says. “But other than that, we have all the IP ownership, the lawyers, and creatives.”
What has also changed is the new normal of the pandemic. As Hastings puts it, “People want to spend on entertainment, because they’ve got so many hours at home.” And not just for OTT players. Direct-to-home (DTH) provider Tata Sky’s Anurag Kumar feels that even linear TV will continue to be a screen of choice for Indian households. “There is enough and more space for both TV and OTT to co-exist in the Indian viewers’ households as they offer mutually exclusive and unique content that does not substitute the other,” Kumar, who is chief communications officer, Tata Sky, says. But Hastings predicts that linear TV will see a decline. This again presents a huge opportunity for Netflix to expand its user base.
Netflix has also forged strategic partnerships with telecom major Reliance Jio, Internet service providers such as Hathway and ACT Fibernet, and device brands like Samsung, OnePlus, and Mi to reach the almost 500 million smartphone users. “We grow by being available wherever our members want us to be. So, if they want to watch Netflix on a phone, we want to be there. We have a large preload programme where the Netflix app is preloaded on Android phones,” says Nag, whose job is to make Netflix available to wider audiences in India. “If people want to watch us on a TV with their family in the living room, we are on the television and we have a programme where we are on over 1,700 devices globally.”
Analysts say that one of Netflix’s strengths is the immense data at its disposal that helps it create a well-defined micro-segment of audiences to target viewers based on a wide variety of taste clusters. Nag explains that in the Internet industry, convenience creates growth. “The more friction you remove from user experiences, the more people will come to your product,” he says.
Enough reason why India is an important market for Netflix globally. In fact, Asia-Pacific was one of its fastest-growing regions in 2020, and the second-largest contributor to paid net additions at 9.3 million (up 65% year-on-year). However, it comprises the smallest share of Netflix’s total streaming revenue of nearly $25 billion, at just under 10%, according to the company’s latest regulatory filings.
Even as Netflix maps its growth trajectory, Hastings is clear his next big bet is centred on shared content across the world. “The interest over the next 20 years around sharing great content is [going to be] very high. And it allows Indian filmmakers and television producers to build a global audience for their work and to share Indian stories and values.”
Back in the day, Netflix was able to read the writing on the wall and successfully pivot from a DVD rental service to a streaming platform. It will need to demonstrate a similar agility as competition gets intense and technology changes rapidly. Clearly, the next five years for Netflix will be very different from the past five. And that’s where Hastings’ philosophy of keeping it as simple as pasta and tomatoes will be subjected to its toughest taste test. Fortune India