What would Netflix’s new model mean for the Indian OTT ecosystem?

Two years ago, people across the world found themselves locked inside their homes amid the Covid-19 pandemic, and desperately seeking diversions.

Not surprisingly, Netflix saw its fortunes skyrocket. The OTT giant reportedly saw an addition of 36 million subscribers in 2020. This was the highest annual growth the company had seen, since its video streaming debut in 2007.

But, that was then.

Multiple factors, ranging from increasing inflation to, even the Russian invasion of Ukraine, have been playing spoilers for it now.

These pushed Netflix to consider rolling out affordable subscription plans that would be supported by advertising. While revealing the plan, Netflix Co-CEO Reed Hastings said that the company would look into the details involved over the next one year or two.

How big a change this is for the company, after years of offering commercial-free content, was reflected in Hastings observation on the topic.

He hadn’t been in favour of advertising in the past. But catering to consumers who were willing to tolerate advertising in return for lower prices made a lot of sense, Hastings said.

Basically, this is Netflix’s AVOD play.

The acronym AVOD stands for a business model associated with online video on demand, like SVOD and TVOD. SVOD is subscription-based video on demand, AVDO is advertisement-based video on demand and TVOD is transactional video on demand.

On the face of it, this might seem counterintuitive, at least where India is concerned.

According to a recent report by CII and Boston Consulting Group, over the past few years, India has seen a remarkable surge in SVOD content. Furthermore, the Indian OTT industry has been transitioning from the AVOD to the SVOD model.

So, why such a move? It appears, there’s still a lot of money to be made with the AVOD model.

Last November, analysts at Media Partners Asia’s APOS India conference reportedly said that among OTT services, AVOD would continue to garner more revenue than SVOD. In fact, India’s AVOD market size is estimated to grow from 1.1 billion dollars in 2021 to 2.4 billion dollars in 2026, according to a Deloitte 2022 prediction report.

Now, what would such a move mean for Netflix?

Would Netflix have to change its content strategy to grow its ad business in India?

At the moment, Netflix is identified by its premium content. Would that focus shift to more mass-oriented, local content? After all, mass reach is essential if it wants to capture the advertisers’ interest.

Karan Taurani, senior vice-president, Elara Capital, says 60% AVOD revenue is dominated by aggregation and sports content, and AVOD market is focused on masses in terms of content. Entering AVOD market will be tough for Netflix, he believes.

And, does this move by Netflix indicates that the future of the Indian OTT market is freemium?

According to Karan Taurani of Elara Capital, Indian OTT’s future will be a mix of AVOD and SVOD. “SVOD base necessary for producing large-scale, expensive content and platforms transitioning to SVOD as consumers demand quality content,” says Taurani. SVOD will grow at a faster pace going ahead and ‘freemium’ will be the way to go for next 5 years, he says.

At present, Netflix has no presence in the sports domain anywhere in the world. Considering that IPL has had a large hand in Disney+Hotstar’s success in India, can Netflix afford to ignore this area, especially given the love for cricket that Indians have?

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