Illustration: Jordan Metcalf For Bloomberg Businessweek

Can Netflix Beat Bollywood?

(Bloomberg Businessweek) -- Addressing a room filled with New Delhi’s business elite earlier this year, Netflix Inc. Chief Executive Officer Reed Hastings offered a prediction: His company’s next 100 million customers will come from India. The crowd grew silent as the man interviewing Hastings, local entrepreneur Ronnie Screwvala, chuckled. Netflix has fewer than 1 million customers in India, and even aggressive forecasts by analysts suggest the video service will reach only 3 million by 2020. Hastings just smiled mischievously.

Netflix didn’t regard India as much of an opportunity when it first expanded there in January 2016. The company has built the world’s largest paid online TV network by taking advantage of the proliferation of high-speed internet to deliver a video service that’s cheaper and easier to use than cable or satellite TV. But Netflix’s average monthly price in India of 500 to 800 rupees ($7 to $12) is twice as much as the average pay-TV offering. Fewer than 10 percent of Indian households with TV pay for a premium TV service that costs more than Netflix. Equally challenging: The vast majority of titles on Netflix’s service in India are in English, but films there fare best when in Hindi or Tamil.

Yet India has zoomed up Hastings’s priorities in the past two years as local telecommunications companies invested billions of dollars to bring the country online. More than 150 million people have access to broadband of some kind, mostly via their phones.

Indians with access to fixed broadband at home—Netflix’s proxy for would-be binge watchers—now number about 50 million, up from 20 million two years ago, company officials say. “Even we couldn’t predict the last two years of Indian internet growth,” Hastings says. “It’s the most phenomenal example anywhere in the world.”

Investors value Netflix at more than $170 billion because they believe in its potential to attract customers in the world’s largest economies. The U.S. market is already saturated, and growth in Latin America and Europe is under way. China isn’t welcoming Western video services, so India represents Netflix’s biggest opportunity in Asia.

Since opening an office in Mumbai in 2017, Netflix has hired an executive to oversee scripted programming for India and spent the past 18 months selling itself to local filmmakers. Despite a global diaspora of Indians, taste in entertainment locally is stubbornly parochial. All but 1 of the 20 highest-grossing movies in India are local productions. To curry favor with audiences raised on Hindi fare, Netflix is commissioning original TV shows and movies more quickly than it has in any market, even the U.S. The service has already released a couple of movies in 2018 and plans as many as 17 projects next year.

Netflix has also licensed mainstream, star-driven films like Baahubali 2 and commissioned stand-up specials from comedians Vir Das and Aditi Mittal. Future projects include an animated original series for kids and an unscripted series on a cricket franchise.

In July, Netflix will release its first drama series, Sacred Games, an adaptation of Vikram Chandra’s novel about the criminal underworld. Bollywood stars Saif Ali Khan and Nawazuddin Siddiqui play a cop and a crime boss whose lives intersect. The show was filmed in Mumbai and is primarily in Hindi, a condition Chandra set. Another U.S. TV network had been lined up for production, but the author was uncomfortable with Mumbai gangsters speaking English. Netflix obliged, convinced the show would resonate with locals, as well as the approximately 50 million people of Indian origin living elsewhere. “We’re becoming a global distribution platform for Indian content,” says Erik Barmack, head for international original series at Netflix. “The one thing we’ve seen that we want to steer away from is the idea of global TV being a French cop and an Italian cop and having them speak English.”

Barmack’s fast-growing division aims to release a new show in a foreign language every week next year, Netflix said at a recent town hall for agents. He spends every day scouring talent factories from Madrid to Mexico City for filmmakers eager to tell a story different from the routine tales of their home country. The Mumbai film community is “as big if not bigger of a world than Hollywood in terms of size and talent,” he says.

Barmack’s search led to a meeting with Vikramaditya Motwane of Phantom Films, a production company founded by four colleagues tired of Bollywood—the Mumbai-centered Hindi film industry that produces almost 2,000 movies a year, more than anywhere else in the world. Part opera, part circus, and part rock concert, Bollywood movies hew to a formula of music, dancing, and romance.

Since childhood, Motwane was more drawn to the drug abusers, hit men, and serial killers of Western cinema and to directors such as Danny Boyle, Quentin Tarantino, and David Fincher. He found a kindred spirit and filmmaking partner in writer and director Anurag Kashyap, who was raised on the noir novels of James M. Cain.

India’s studios didn’t share their enthusiasm for gritty, violent fare—qualities that often run afoul of censors. The pair’s crime thriller, Paanch, has never been released, because the Indian censorship board objects to its language, the use of marijuana, and the depiction of masturbation. Netflix executives were drawn to the edginess, however. Kashyap and Motwane directed every episode of Sacred Games.

In addition to more-challenging stories, Netflix will also give subscribers on the subcontinent another challenge: higher prices. Pay TV in India consists mostly of low-brow soap operas and sports and costs the equivalent of a couple of dollars a month. “Netflix is at the other end of the spectrum in India,” says Mihir Shah, an analyst with Media Partners Asia Ltd. “It’s the most premium subscription service.” At its current price, Netflix will appeal only to the 10 million or 15 million people who now pay for high-end TV service and have broadband at home, Shah says. Others will watch YouTube on their phone or subscribe to one of many rival services that cost less, such as Amazon Prime Video or 21st Century Fox Inc.’s Hotstar.

Netflix says it has no plans to adjust its price in India, but some subscribers could get lower rates if their local pay-TV and phone operators strike deals with the streaming service, as T-Mobile USA Inc. does for some wireless customers in the U.S. Netflix has discussed partnerships with Bharti Airtel Ltd. and Reliance Jio Infocomm Ltd., two of India’s largest telecommunications companies, and has announced a deal with Vodafone Group Plc’s India unit to bundle a free year of Netflix with certain mobile plans.

Netflix executives are also anticipating they can overcome the not-invented-here challenge. Netflix has released original series in English, Spanish, Portuguese, Tagalog, and Danish so far this year, with shows in Japanese on the way. Management says many of their international series, including the Brazilian 3% and the German Dark, have been global hits. “It’s too simple-minded to think, Well, Bollywood is huge, so they mostly watch Indian content in India, ” says Todd Yellin, Netflix’s vice president for product. “We got Americans to watch a Brazilian show and German show in numbers that are unprecedented. It gives me confidence we can get Indians excited to watch great stories from all the other countries.”

©2018 Bloomberg L.P.

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