India is proving to be a pretty important testbed for both Netflix's (NFLX) emerging markets and content spending strategies.
On Wednesday morning, Reuters reported that Netflix is running an Indian test through which subscribers can obtain discounts by signing up for extended periods of time. It added that (according to a source) new users "may have the option to choose from three-, six- and 12-month plans at discounts of up to 50%."
The test comes a few months after Netflix rolled out a mobile-only, standard definition-only, Indian plan that costs just 199 rupees ($2.81) per month, to complement three regular plans that cost between 499 and 799 rupees per month ($7.05 to $11.29). In its Q3 shareholder letter, Netflix said the mobile-only plan was performing better than expected, and that it's "continuing to test mobile-only plans in other markets."
Separately, while at a New Delhi conference last Friday, Reed Hastings said that Netflix, which has set a 2019 global cash content spending budget of $15 billion, plans to spend about 30 billion rupees ($420 million) on producing and licensing content in India between 2019 and 2020. Hastings also asserted that several of Netflix's Indian-produced shows, including crime thriller Sacred Games and an animated children's show known as Mighty Little Bheem, have done well outside of India. More than 27 million households outside of India are said to have watched Mighty Little Bheem.
Netflix's Indian content spend appears to be well above that of any local rival. TechCrunch reported hearing from an industry source that "no streaming service in India is spending anything close to [Netflix's] figure," and also quoted an unnamed exec at a rival streaming firm that Netflix's spending is "significantly higher than what we have invested in content over the past years."
Netflix's subscription test and mobile-only plan clearly have a lot to do with the cost-sensitivity of the Indian market: Although India has a swelling middle class, its per capita GDP is still only around $2,000. The moves also might have something to do with the tough competition Netflix faces in India from both Disney's (DIS) Hotstar service, which offers both ad-supported and subscription streaming services, and Amazon.com's (AMZN) Prime Video service.
Hotstar's subscription service, known as Hotstar Premium, costs just 299 rupees ($4.23) on a monthly basis and 999 rupees ($14.13) on an annual basis. And Amazon, which has a burgeoning Indian e-commerce business, charges just 129 rupees ($1.82) per month or 999 rupees per year for the Indian version of Amazon Prime, which of course provides a lot more than just Prime Video.
In such an environment, Netflix has no choice but to price aggressively, and that's bound to impact its local margins and average revenue per user (ARPU).
But on the flip side, as Hastings' comments signal, Netflix's unmatched global scale among subscription streaming providers gives it a unique ability to differentiate its services in a market such as India. Specifically, the company can significantly outspend local rivals when it comes to original content, while also providing the tons of original content it developed elsewhere, and obtain an adequate payoff on the local content by getting some portion of its giant global subscriber base -- a base that featured more than 158 million paid subs as of Q3, and should feature more than 200 million in a couple of years -- to watch it.
Such a strategy also benefits from Netflix's ability to use its troves of viewing data to both gauge which types of foreign-language shows and movies could do well outside of their home market, and figure out what international content to recommend to a particular user. The global success of Netflix originals such as Spanish heist series La Casa de Papel, German sci-fi thriller Dark and Brazilian dystopian thriller 3% suggests it has already made a lot of progress in this arena.
Ultimately, Netflix's Indian strategy -- offering cheap subscription plans, investing heavily in local content and wagering that local content spend will yield at least one or two global hits -- could serve as a template for many other cost-sensitive emerging markets. And like a few other competitive strengths, Netflix's one-of-kind ability to make such a strategy work probably isn't fully appreciated by many of those bearish on the company due to growing competition.