Netflix goes to 'Tollywood' and beyond for long-sought India growth

In southern India, devoted fans worship film and TV stars like gods, erecting huge statues of actors which are bathed in milk as part of prayer rituals for a movie's success.

This is the market Netflix Inc NFLX.O, a streaming laggard in India, is now eager to tap. It has a range of Indian films across various regions to showcase but for TV series - key to keeping viewers loyal to its platform - it only has a few hit shows in Hindi and no TV shows at all in regional languages.

The US company has greenlighted at least six TV shows in southern Indian languages this year, aggressively chasing deals in Tollywood as the Telugu film and TV industry is known, as well as in the Tamil film and TV industry, six people with knowledge of the company's plans told Reuters.

As prolific as Hindi-language Bollywood and known for flashy, action-packed content, the South Indian film industry is doing extremely well of late, dominating India's box office revenue so far this year.

Netflix has "had meetings with pretty much every producer and filmmaker here. You will see the results of those meetings by next year," one of the people, a Tollywood producer, said. All sources spoke on condition of anonymity, fearing loss of work opportunities.

Netflix has long positioned India, with its population of 1.4 billion, as a key market. In 2018, two years after it launched in the country, CEO Reed Hastings predicted its next 100 million subscribers would come from India. But so far it has just 5-6 million, according to analysts' estimates.

By Hastings's own admission, Netflix has been frustrated by its lack of success in India relative to its other markets. This new push south also comes at a time when the search for growth has taken on new urgency.

The streaming giant stunned investors last month when it reported a quarterly net loss of subscribers globally for the first time in more than a decade, and predicted deeper losses ahead. Its stock has lost almost half its value since then.

SMALLER THAN RIVALS

In India, Netflix outperforms rivals in terms of revenue share of the subscription video-on-demand market, commanding 39% share in 2021 compared to nearest rival Disney Plus Hotstar's DIS.N 23%, according to Media Partners Asia.

But analysts say its subscriber base is too small for comfort. Next to Netflix's 5-6 million, Disney Plus Hotstar, which owns cricket streaming rights, has about 50 million. Local rival Zee5 ZEE.NS has an estimated 20 million and analysts also gauge Amazon Prime AMZN.O and SonyLIV's 6758.T subscriber figures to be well above Netflix's numbers.

India's market potential "can't be understated," says Julia Alexander, director of the strategy at US-based Parrot Analytics.

"If Netflix doesn't try to capitalize on it by creating stronger relationships with local creatives, local studios/production companies, and carving out a real place for itself in India, someone else will," she said.

Asked by Reuters about criticism of its performance in India and its push into regional languages, Netflix said in a statement it was confident of what it called a "long-term winning strategy in India".

"India continues to represent a tremendous opportunity for Netflix to invest and grow, both in terms of membership and the variety of content we offer to our members," it said.

A large part of Netflix's woes has been its much higher pricing in an extremely cost-conscious market. It slashed fees late last year, making it more competitive but remains much pricier than rivals.

It charges 649 rupees, roughly $8, per month for its highest quality streaming resolution plan that allows use on up to four devices. A similar plan from Disney costs 299 rupees. Netflix's mobile-only plan for one device is 149 rupees for one month, while Disney charges the same amount for three months.

Netflix's brand as a premium service may make it reluctant to cut prices further but that means its best, if not only, path to significant subscriber growth is expanding its slate of TV shows, analysts say.

According to two Indian producer sources, however, Netflix tends to take much longer than rivals to commission shows and is less adept in providing feedback to content developers.

Netflix did not address this criticism in its response to Reuters.

Even with new southern Indian shows added to its pipeline, Netflix still lags rivals. For example, Amazon last month announced 22 new original TV shows, eight of them in Tamil or Telugu.

"Netflix is behind compared to Amazon, Hotstar and SonyLIV because it is still in the commissioning stage, whereas the others already have shows out or on the verge of release," according to a producer who said he was in talks with Netflix.