Benefits of Solving the Problem Netflix

PROJECT REPORT
Netflix in India
INSY-5375: Management of Information Technology

GROUP WEEKEND WARRIORS:

• Aanchal Jain
• Hendy Ivander
• Janai Catrice Tyson
• Sabreen Zahid
• Steven Dickerson

Fall 2018

Introduction

Netflix began as a video rental by mail company in 1997 by Marc Randolph and Reed Hastings. Their resourcefulness in creating an unlimited rental, monthly subscription service not only quickly became a strong rival to traditional video rental stores, they virtually eliminated the competition. Netflix continued with their ingenuity and expanded their product offerings to include online streaming services through the internet in 2007.

Netflix now accounts for nearly 37% of all internet traffic in North America, it appears as though Netflix's supremacy cannot be challenged.

The success of Netflix is not universal, however. In countries such as India for example, Netflix is facing serious challenges from competition. In India, Hotstar owns about seventy percent of the on demand local streaming services totaling about 150 million monthly active users. In comparison, Netflix has fewer than one million active monthly users. When Netflix entered India in 2016, there may not have been much of a focus on India due to its poor internet infrastructure. Since then, India's internet infrastructure has drastically improved and it's anticipated online video market in 2023 is expecting to grow to over $2.4 billion. There are several important factors that seem to be the culprit for Netflix's current struggle in India.

The first is the difference in spending culture in India compared to the United States and Europe where Netflix is having great success. Statistics based on the annual revenue per user metric, or ARPU, allows for a quantitative look at consumer spending habits for on demand services. In the United States, consumers are accustomed to spending more for entertainment. The ARPU in the United States is $25.29, in India the ARPU is as little as $3.00, less than an eighth of what a typical American will pay.

Netflix seems to have ignored this critical piece of information as they are the most expensive on demand service in India. Netflix is reported at over $7.50 a month for a subscription while Hotstar users can enjoy its service for free with advertisements or pay roughly $3.00 a month for its premium service, an alternative option for Indians is Amazon Prime where subscribers pay only $15.00 per year. Not only is Netflix competing with other on demand rivals, Netflix is competing with online piracy as well. India is the fifth largest video piracy nation in the world, and this ranking will only grow larger as India exponentially improves it's network infrastructure. These factors are going to force Netflix to change how it operates.

Benefits of Solving the Problem

Netflix is the industry leader in subscription based video streaming service in United States. Netflix US has more subscribers than country's largest cable companies.
Although Netflix has proven that it can launch its streaming service in emerging markets, the company has struggled to add more subscribers internationally. The international opportunity for growth is certainly significant as it has very likely hit market saturation here in the United States. Netflix must do more than just develop a presence in the international market; for Netflix to thrive overseas, the company must approach international markets differently from domestic ones. We propose that Netflix build up its global IT infrastructure to gather extensive data about the market, which then can be used to create a library of shows and movies desired by global users. The ability to gather viewing data from a global audience will allow the service to recognize content of viewer interest.

Today, it is more common for people all around the world to fulfill their entertainment needs online. Therefore, it is imperative for companies like Netflix to gather, analyze and convert data into insightful information to gain a more in-depth understanding of their subscribers. When Netflix first entered the market in India, they failed to offer a variety of local content nor did it offer a sufficient selection of Western content. Subscribers quickly realized that the library available in India was extremely small compared to what is available in the U.S. and the localized Indian content was insufficient. Data analysis in the Indian market will ultimately help Netflix to attract and retain more subscribers.

With local and international players giving Indian consumers what they want, Netflix will benefit from this plan by increasing competitiveness in India's high growth streaming market. With so many options available in India, one of the key differentiators between services is content creation. Data analytics will help Netflix to gain deeper local insights and gain a competitive edge in the market. This will also aid Netflix's attempt on global expansion, by highlighting the simple fact that much like the U.S., the market in India is not unified, but rather a blend of different languages, religions and social classes. This business plan will help Netflix to better understand its international customers and tailor its content and services to better suit their wants and needs. "Netflix will face varying levels of competition, regulation, and economic conditions in each individual market it participates in, but its content scale should allow it to become the dominant streaming player in virtually all markets" (Vena, 2018).

Furthermore, Netflix has to compete with companies all over the world for subscribers. One of the biggest competitors Netflix has in India is regional companies, such as Hotstar. These companies not only know what their market wants, but they can provide a wide array of local content in popular local languages. For this reason, our business plan will help Netflix to focus on local content and attract more users. While India has the potential to be one of the most lucrative markets for streaming services, the country is known to be price sensitive and does not have a culture of spending on video. So, Netflix not only has to compete with many local established video-on-demand services many of which are free, but also piracy. Using our business plan can help the company to change this dynamic and will help Netflix to be more appealing in India. As the company attracts more users, streaming revenue will increase which will ultimately increase the profitability of the company. With data analytics Netflix should be able to rapidly expand its customer base and provide the capital needed to continue building its content, attracting more users and more money.

Netflix will benefit from this business solution by increasing competitiveness in the foreign market as well as increase profitability of the company. Streaming revenue will increase as the company will attract more subscribers in the price sensitive market by better understanding the needs of international customers. A focus on local content can help the company change this dynamic and attract more users (Forbes). We hope that this will make Netflix very appealing in India's high-growth streaming market as this segment is crucial to long term growth.

Business and Technical Approach

In our data collection technique, we launched online surveys and gathered company data. The information that we wanted to gather based the below parameters:
Demographics
Netflix customers: How much they pay, why they chose Netflix, what content do they watch, what will retain them as a Netflix customer
Other streaming service subscribers: How much they pay, why they didn't choose Netflix, their willingness to pay for Netflix, what kind of content they prefer, what will make them a Netflix customer.
Free content watchers: Willingness to pay for Netflix, what kind of content they prefer, what will make them a Netflix customer, which one would they choose between Netflix and Amazon.

The Pricing of subscription-based streaming comparison is as follow:

Figure 1: Comparison for Online Streaming Price

The competitors to Netflix in India have much better content than Netflix and are completely customized for the appropriate audience. We did some graphical analysis based on the data we collected. Our Exploratory data analysis depicts that Netflix is viewed exclusively by 17% people in India. The chart below shows the details:

Figure 2: Distribution of Respondents

According to the age and education level demographics, 65% of the existing customers are within the age range of 18-30 years, and have a bachelor's degree.

Figure 3: Existing Customer Age and Education Level

According to the age and education level demographics, 65% of the existing customers are within the age range of 18-30 years, and have a bachelor's degree. As stated by the chart below, we the existing customers pay almost the same rate as in the United States and they are not happy about it.

Figure 4: Existing Customer Response Based on Price

When we analyze the content that the users view in India, it depicts the picture that most of the audiences do not prefer documentaries and sitcoms. The graph shows as below:

Figure 5: Content Analysis

Using R modules as our tool, and based on the 47 observations, we have come up with the model for different respondent. Using the 4 factors – User, Add Content, Lower Price, Yes/No to Changes. What we are trying to do here is to get the score for people asking for change and assess if it is actually needed. The figure below shows the fact that people are asking for lower price for user 1, 2, 3 has the highest score, notably: 12.76, 23.40, 21.27. Also people wanting Netflix to add more content scored the second highest and this could be a great option for Netflix to tap into if they want to keep the price the same.

Figure 6: Responses Scoring

We have also developed an association rule to see if there is any relationship between those 4 variables – User, Add Content, Lower Price, Yes/No to changes. The rule shows in the figure below. There is definitely a relationship between add content and lower price – which could positively affect potential user. Current user might not care if there is no changes being made, but still, it could be a great opportunity for Netflix to capture those market that they don't have yet.

Figure 7: Association Rule

We prepared a Logistic Regression Model to predict the current user expectations, starting from the content, age group, and price point. The model depicts that , Hollywood genre and American series shows are a favorite, even among Indian audience, while stand-up comedy shows are the least preferred. Bollywood movies are not as popular as the rest, which is to be expected, but with more content, it could be a great market for Netflix to tap into.
Based on the Age model, there are comparably more user aged 18-30 compared to 30-45 age group. They are missing lots of potential user in this segment. The target age and education audience for Netflix in India is depicted below:

Figure 8: Target - Potential Customer

It could be a great opportunity for Netflix to add more genres that is geared toward older generation. And based on the price model shown below:

Figure 9: Price Effect Plot

Netflix users are paying more than non-Netflix users. Here, the two pricing levels are greater than $10 (Netflix customers) and less than $10 (non Netflix customers). There are more people in the 18-30 age group who are Netflix customers. 31-45 age group is the potential future customers Netflix can aim to target

Figure 10: Age Effect Plot

There is also a possibility to tab the competitors market as we see that Amazon Prime is one of the top video streaming services in India and people are willing to pay for Amazon services mainly because of the price factor.

Figure 11: Potential Customer Preference

This shows that the audience is willing to pay for Netflix's competition Amazon. Hence, Netflix can make changes to content and price and target this competition market.

Business Process Change

In India, where Amazon's service is bundled with it's prime benefits for just Rupees 499 a year, and Hotstar charges Rupees 190 a month, Netflix comes in at the expensive end i.e. Rupees 650 a month. Therefore, Netflix should provide discounted prices to attract students (the age group of 18-30), along with promotional pricing to acquire and retain young professionals. In a country that adores cricket, streaming cricket tournaments played in India and by the Indian cricket team, is a big plus. Not only cricket, but streaming FIFA world cup in India, is observing a similar growth. Netflix's insistence to keep away from live sports could prove to be costly, hence, streaming sporting events could help bring new users and keep them online. In India, Hotstar streams HBO contents minutes after it is aired in USA, like, Game of thrones, Silicon Valley. Such shows are becoming increasingly popular in India, and therefore Netflix should come up with a strategy or make a deal with HBO and Disney, where it gets access to the most latest content in order to attract audience. Netflix should improve the Indian comedy content by partnering with local stand-up comedians like All India Bakchod, something like Amazon, that has come up with a series called Comicstaan. In a country with 22 major languages, written in 13 different scripts with over 720 dialects, Netflix should provide more regional shows. Netflix's major content is in either Hindi or English, which not the whole of India's population understand, though it has started shows in languages like Tamil, but more regional content should be provided.

References

Khera, S. (2018, July 07). From Hotstar, Prime to Netflix: The rise of online video streaming in India. Retrieved from https://www.thenewsminute.com/article/hotstar-prime-netflix-rise-video-streaming-india-84369
Madhavan, A. (2017, October 20). How Netflix Lost Big to Amazon in India | Backchannel. Retrieved from https://www.wired.com/2017/01/how-netflix-lost-big-to-amazon-in-india/
Vena, D. (2018). International Growth Could Triple Netflix's Subscribers -- The Motley Fool. [online] The Motley Fool. Retrieved from https://www.fool.com/investing/2018/05/22/international-growth-could-triple-netflixs-subscri.aspx

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