Netflix is making significant strides in India’s OTT streaming market, evident from its recent filing. The streaming giant reported an impressive 24% YoY growth in its operating revenue, amounting to Rs 2,214 crore in FY23, ending March 31, 2023. What’s more appreciable is the net profit for Netflix India, which surged a whopping 75% YoY to Rs 35 crore during the same period.
Netflix India’s revenue growth for FY23 is primarily attributed to its strategic decision to lower its subscription cost, prompting more Indians to sign up for the streaming platform.
Let’s delve into the specifics to understand how Netflix managed to boost its revenue and profit effectively in India while maintaining cost efficiency throughout fiscal 2023.
Netflix India Expenses
In response to the fierce competition posed by industry rivals such as Disney+ Hotstar, JioCinema, and Amazon Prime Video, Netflix India strategically allocated Rs 2,232 crore in FY23 towards operational activities, such as marketing, advertising, employee benefits, etc. These operating expenses increased 23.9% YoY during the last fiscal year, surpassing the 16.1% YoY surge in expenses reported in FY22.
Over the course of the past three years, a noticeable trend has emerged in the financial dynamics of Netflix India. During this period, the operational expenses of Netflix India have consistently exceeded its revenues, albeit with a marginal difference. This suggests that Netflix India has been strategically investing funds with a focus on acquiring new users for its platform.
However, a significant portion of Netflix’s newly acquired users in India tend to opt for the more budget-friendly mobile or basic plans, priced at Rs 149 and Rs 199, respectively. In contrast, the standard and premium plans, priced at Rs 499 and Rs 649 per month, offer additional features but are relatively more expensive. This observation underscores the price-sensitive nature of the Indian market, where OTT platforms like JioCinema are thriving fast in terms of subscriber base.
It is also important to note that Netflix India’s profit figures may appear higher due to a unique financial structure. The company’s content investments in India are not included in its operating expenses but are instead reported through a distinct entity – Los Gatos Production Services India.
Los Gatos oversees the production and licensing of content from third-party production firms and Netflix’s various regional production units globally. It earns revenue from Indian shows that are streamed on Netflix’s platforms in other markets. In the fiscal year 2023, Los Gatos Production Services India recorded a substantial gross turnover of Rs 3,191 crore, boosted by a notable infusion of Rs 1,300 crore from Netflix’s global parent in November 2023.
On the flip side, Netflix’s primary local unit, Netflix Entertainment Services India, follows a distinct revenue model. It generates income primarily from subscription fees and directs its expenditures towards the marketing and distributing of shows and movies, whether produced or featured on the platform.
The surge in revenue for Netflix India during FY23 can be attributed to a strategic 20-60% reduction in subscription fees implemented in December 2021, likely contributing to an increase in subscriber numbers. While this may impact the immediate revenue figures, it aligns with a long-term vision of building a broader and more inclusive subscriber base in the competitive landscape of the Indian streaming industry.
India’s OTT Streaming Market
India’s OTT video market achieved a significant milestone, surpassing $200 billion in 2022. The market is poised to expand from $235 billion in 2023 to a staggering $837 billion by 2032, representing a robust Compound Annual Growth Rate (CAGR) of 17.2%.
As of October 2023, a report by Bernstein revealed that Netflix had amassed approximately 6.5 million subscribers in India. Disney+ Hotstar dominates India’s online video streaming market with nearly 38 million subscribers in India, while Amazon Prime Video has some 20 million subscribers.
Besides the high pricing of monthly plans compared to its rivals, the sluggish growth in Netflix’s subscriber base in India can also be attributed to the lack of local content. Reports suggest that only 12% of the titles the Netflix platform offers in the country are of local origin, meaning they are produced or created within the country. In contrast, around 60% of the content catalogue on Prime Video in India consists of content in local languages, making it more appealing to a broader audience with diverse linguistic preferences.
Disney+ Hotstar, despite a massive subscriber base, is in talks with Reliance Industries for a potential acquisition or merger. This strategic move is prompted by the platform’s challenges in retaining subscribers, particularly against the competition posed by JioCinema, resulting in financial losses. In FY23, Disney+Hotstar reported 35% YoY growth in revenue, amounting to Rs 4,341 crore, while the net loss more than doubled to Rs 748 crore.
