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Netflix In India – The Way Ahead Case Solution & Answer

Netflix In India – The Way Ahead Case Solution 

Introduction:

Netflix Inc. Corporation is a USA based media service provider and production company. The Corporation was founded in 1997 by Reed Hastings and Marc Randolph and is headquartered in Scotts Valley, California. Currently, the organization has over 151 million paid subscribers with the geographical outreach of more than 190 countries globally (McFadden, 2020)

The organization entered the Indian market in the year 2016, as the country appeared to be a lucrative market considering, India had a subscription base of over 500 million, huge growth potential and prospects in the Subscription Video on-demand market and significant expected growth in the over the top video content demand in the country. (Tripti Ghosh Sharma, 2016)

Problem Statement:

When the organization expanded its business in India, strategic issues were faced by the organization due to different consumption patterns of consumers in India, low internet penetration in the country, lack of internet infrastructure, censorship issues, lack of Indian content and intense competition from local media and online content providers, which include: Hot star and other OTT experts.

Porter Five Forces:

In order to analyze the online media industry in India, Porter five Forces Framework is used:

Bargaining Power of Supplier:

The bargaining power of suppliers is considered to be high as the organization will need to obtain its content through licensing agreements with local content producers. In addition, the organization will not own the right to the majority of the content considering, rights will be obtained for streaming Bollywood and regional movies which might be sold by the content creators to its competitors once the contract expires.

Moreover, there are few companies in India producing entertainment-based and media content that might refuse to distribute content rights to the organization in order to support local online video streaming companies such as hot star. The high reliance on local suppliers to stream local content in order to acquire and retain Indian customers suggests the high bargaining power of the supplier. There appears to be supplier concentration in the region considering, the media companies have to rely on a few key suppliers to create and purchase content for streaming.

Bargaining Power of Buyer:

The bargaining power of the customers appears to be high as the switching cost for the customer is low considering, the customers can cancel the subscription at any time and seek other media providers in the region that offers the same services at a low cost as compared to Netflix. For instance, Eros Now charges $1.47 per month with a content library of over 3500 movies and hot star currently charges INR 300 per month and provides access to over 300 Bollywood movies. (news18, 2020)

The organization cannot charge higher prices from the customers and need to employ a cost leadership strategy under which prices will be kept to its minimum and a maximum number of customers will be targeted. In addition, the buyers are widespread considering, different age groups, regions and genders in India have a high inclination towards movies and these customers are unique in their consumption of online video content.

Threats of New Entrants:

The threat of new entrants in the online media industry appears to be high as the online media industry requires significant capital to obtain rights from content providers and produce original content. In addition, patents will need to be obtained to stream content on the online platform and extensive legal barriers exist as contracts and licensing agreements will need to be formed to produce and stream content. The high fixed cost associated with the content licensing for local Indian content and the development of new content has refrained new players to enter the market

In addition, in order to gain competitive advantage and secure significant market share, new and original local content will need to be offered which Netflix is planning to develop. Moreover, as existing players in the industry has a strong brand image, employ cost leadership strategy, competing with these players might be difficult.

Threats of Substitutes:

The threats of substitutes in the region appear to be high as due to low internet penetration in the region and lack of internet infrastructure viewers prefer to watch movies and content on the television, Dish TV, Tata Sky, Airtel Digital TV and other TV Everywhere apps. Moreover, the organization also faces threat from electronic sell-through services, a method where consumers pay a one-time fee to download a media file and store it on a hard drive to access the file anywhere for their won convenience.

Due to a lack of infrastructure issues and internet connectivity issues in the region, the consumers are driving towards electronic sell-through apps that include Google and iTunes. Moreover, the specified substitutes charge much lower as compared to the online video platforms therefore, the customer preference for such services appears to be high.

Rivalry:

The organization faces intense competition in the region due to the existence of numerous well known and globally recognized players and local online video platforms. The major competitors of the organization include hot star, Eros now, HOOQ and Spuul. Hot star provides free streaming services to its customers, whereas, Eros Now and Spuul provides access to over 1000 and 3500 Hindi movies from major production houses in India. In addition, the competition in the region is expected to become more intense as the SVoD user penetration is expected to grow to 0.86 percent in 2020 from 0.57 percent in 2016.

The strong brand image and huge customer base of these organizations will make it difficult for Netflix to obtain content display rights. In order to compete with these players, the organization will need to employ a cost leadership strategy, reduce its price structure as the disposable income of people in the country is low and will need to update its content library by adding new and existing Indian content on the platform.

VRIN Framework:

In order to evaluate Netflix corporation’s abilities, resources and competitive advantage, VRIO Framework has been used.

VRIO Analysis
Resources/Capabilities Value Rarity Imitability Non-Substitutable Sustainable Competitive Advantage
Business Model (free one-month subscription) Yes Yes Yes No Not a Competitive Advantage
International Presence Yes No Yes No Competitive Advantage
Strong brand identity Yes No No No Competitive Advantage
Innovation (Unique Content) Yes Yes Yes No Competitive Advantage
Financial Sustainability Yes Yes No Sustainable Sustainable Competitive Advantage

 

Value:

The core competencies that have differentiated the organization from its competitors include innovation i.e. creation of original and unique new local content as the organization has partnered with Phantom Films to produce its own series Sacred Games. This has provided a competitive advantage to the company as other online platforms in the region have not developed any original content to date. In addition, the unique business model of the organization that comprises free access to content for a month has allowed the business to attract maximum customers.

Rarity:

The unique business strategy of providing free access for one month to the customers is a rare resource and none of its competitors employs the specified strategy. Hot star provides free access to content but its content library comprises existing Bollywood movies and series. In addition, the strong financial position of the company has enabled Netflix to acquire rights to maximum content, operate at low margins in India and fund the development of new original series. Although other firms have a strong financial ability it does not match the financial position of the company therefore, providing a competitive advantage to the company.

Imitability:

The strong international brand identity, financial stability and innovative ability of the organization cannot be imitated by the rivals as Netflix has gained significant popularity overseas as compared to Spuul and HOOQ. Due to the strong international identity of the brand, the production houses in India would prefer to display their content at a particular platform. However, the business models, development of unique content and adoption of a free one-month subscription can be imitated by the rivals.

Non-Substituable:

The resources of strong brand identity, business mdoel, international presence, innovation and financial stability appears to be easily sustainable as its competitors are already financially stable, can produce their own content, have  atrong brand identity and Hulu and Spuul have an international presence.

AAA Model:

The adaptation, aggregation and arbitration model is used by various organizations to make effective strategies in relation to global expansion.

Adapt:

The adaptation strategy includes methods to increase revenue and capturing marketing share by changing one or two components of the organization’s business model in order to suit local customer preferences and needs. The organization will need to change its current pricing model as the disposable income of the citizens is low and the majority of the populations belong to the middle class or poor class.

Therefore, a cost leadership strategy will be employed in which the services will be offered at lower or competitive prices, making the Netflix subscription model the cheapest so that the customers can easily afford it. The strategy will allow the company to attract and retain a maximum number of customers. In addition, the buyers are widespread in the region and each buyer has different preferences for Bollywood content, the corporation will need to offer local content in various regional languages as access to content in the local language holds significant value for consumers…………………

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