Bus+441+-+Midterm+-+Fall+2023

Midterm Exam – Strategy – Fall 2023 Netflix in India For this semester’s midterm exam, I would like you to analyze the case, “Netflix in India.” The case deals with the challenges and opportunities presented to Netflix as it seeks to expand its presence in the emerging Indian market. For this case, I would like you to analyze the Indian market using the five forces framework as an analytical lens. I would like you also to evaluate Netflix's strategy as well as its strengths and weaknesses with respect to serving Indian consumers. Finally, in light of your analysis, I would like you to evaluate Netflix’s prospects in India and offer a recommendation for what their strategy should be going forward. A hard copy of your answers to the following questions is due Friday, November 3 rd , at 5 p.m. in the mailbox outside my office. You may answer these questions as one continuous essay, but please annotate where your answers to the questions are located in the text. 1. Please forecast how the industry landscape in the Indian streaming business will evolve over the next five to ten years. a Over the next five to ten years, demand for streaming services will grow as the population increases, internet infrastructure advances, and as streaming platforms build out their Indian content. Due to the lacking high-speed internet infrastructure, in 2011 a significant portion of Indian viewers consumed content through mobile devices, often times preferring short form content through sites like YouTube due to the lacking home internet speeds. 1 As internet providers expand their services and build out more affordable, unlimited, high speed internet plans, one can expect the demand for streaming services in India to increase as there is a direct relationship between internet speeds and video consumption. 2 The advances in internet infrastructure may shift viewer preferences from short form content to longer form, streaming content as viewing HD long-form content becomes cheaper and more efficient. It is projected that from 2015-2020 demand for OTT video content will increase at a CAGR of 83%. 3 Consumption of HD and UHD video expected to increase to 21% in 2018 from 4.5% in 2013 as internet infrastructure develops. While this increase in demand for HD, UHD, and OTT content in general is mostly driven by advances in internet infrastructure, it is also driven by population growth which will significantly grow the Indian viewer base. 2. How would you characterize consumer preferences and the level of demand? What are the major substitutes for streaming in India; how strong are these substitutes; and do these substitutes represent a credible threat to the streaming business in India? a Due to India’s large consumer base, its consumer preferences can be aptly described as segmented and various. Overall, across all demographics in India, consumers preferred to watch recent movies and preferred YouTube videos as the most popular video content provider. 4 Because of the large viewer base in India, there is a high level of demand for 1 Page 2. 2 Ibid. 3 Ibid. 4 Ibid.

video content that will only grow in the near and far future. Because of the highly segmented consumer preferences and large consumer base, there is plenty of space for multiple players in the video streaming industry to satisfy the many niches of Indian demand. b Five main substitutes to SVoDs in India include ad video support on demand, traditional TV, local streaming SVoD, video pirating websites, and electronic sell-through apps. Ad- supported video on demand (ADVoD) sites like YouTube pose a significant threat to SVoD services like Netflix due to their lower cost (essentially free) and large variety of content. In 2015, YouTube was the most popular on-demand video content site in India. However, as addressed above, this may change as internet infrastructure advances. Traditional cable TV poses a smaller threat to SVoD in India. While many Indian streaming platforms grew their SVoD services out of their already existing TV networks, the increase in SVoD viewership did not initially effect TV viewership. 5 While this may seem like a threat, the fact that SVoD viewership did not effect TV viewership shows that perhaps the two are compliments, or that they can at least vie for demand without too much competition. However, in the future, it seems that SVoD services will win out against traditional TV as it has in America. Another threat to traditional SVoD services is localized, SVoD services. The more local players fill niches that others cannot, offering catalogues in less popular languages and cultures such as Bengali. As streaming platforms like Netflix grow larger, build out their business and content in India, they may be able to grab some of the niche market share from the local players. Finally, piracy poses a large threat to streaming services in India not only because so many Indians engage in it, but also because it is very difficult to prohibit, especially for foreign players with whom the Indian government and law enforcement are less keen on supporting. Lastly, electronic sell through apps like iTunes and Google Play pose a credible threat in the short term as their price per video is so cheap. However, as internet infrastructure advances and SVoD becomes more efficient and cheaper, sell-through apps will lose their strength. 3. What are the major entry barriers into the industry and will those entry barriers change over the relevant time horizon? How do these entry barriers challenge domestic versus foreign competitors? Who are the suppliers to Netflix in India? How strong are those suppliers, and what do you think will happen to their power in the future? a The major entry barriers within the steaming industry in India include licensing contracts, capital costs for server hosting cloud services and original content and production costs, and building subscriber bases. The cost of licensing contracts for Indian content should increase in the future just as contracts for content in the U.S. have as competition between providers becomes stronger. As competition grows and the industry advances, licensing contracts will only become more expensive. Additionally, data hosting costs may decrease in the future due to economies of scale as they have in the U.S. As the industry grows, competitors will require higher production costs if they choose to produce their own content as higher quality content is demanded by viewers as the standard of living in India increases. Additionally, garnering a subscriber base, which already poses a high entry barrier in India, will only increase in the future as larger players snatch up most of the viewer base. Foreign competitors, who are more out-of-touch with local customs and desires will require additional costs 5 Ibid.

data-saving app feature may not prove to be a long-lasting competitive advantage. However, Netflix’s ability to produce high quality content should set itself apart from competitors in the future. In the future, Netflix has the resources to become the high- quality streaming service in India, supported by business in other markets. b As of now, India is lacking in 7 the content and subscriber base department due to late- mover disadvantages. Although original content and subscriber growth have been lackluster for India, as internet speeds advance and as India grows its catalog, Netflix should begin to grab market share as the high-quality player. Additionally, Netflix is excellent at building a catalogue around customers and using their viewing data to garner insights into consumer tastes and new subscribers. In the long term, once Netflix acquires enough viewer data in the Indian market, it should be able to provide customers with a better viewing experience than other players. Netflix lacked first-mover advantage and the business and government connections associated with being a domestic player. If Netflix teams up with or acquires Indian suppliers or competitors, it could gain access to the advantages of being a domestic player. 5. What strategic options does Netflix have in the Indian market, and how attractive are those options? What are their pros and cons? Which strategy do you think Netflix should pursue and why? How does this strategy both exploit and defend the major trends you have identified in the Indian market? Why does this strategy fit with, defend, and exploit the firm’s key resources and capabilities? Where would you predict Netflix will be in the Indian marketplace, and why? Will they (Netflix) win? (30 pts.) a In the future, Netflix should choose to build out its own original content catalogue in India and team up with local players to gain the advantages of domestic streaming firms. While this strategy will include a lot of upfront costs in the beginning, once it sets it catalogue apart as the high quality choice, Netflix should become a success in India. Netflix’s strategy will require continual investments in technology to keep its content and app interface at the forefront of quality in India. However, this strategy may require higher subscription costs. Additionally, India can choose to venture into more niche localized markets. This may be a good strategy in the long run, but in the near term, the niche markets may not provide enough revenue to justify large expenditures. Netflix should focus on flooding the market with high-quality original Indian content. With this, Netflix should continue to offer aggressively priced plans and free trials to acquire as much market share as possible in the Indian streaming services nascent stage. Through this, Netflix can grow its customer data knowledge and provide the highest quality experience for its Indian users in the future. If Netflix teams up with the right domestic players, they will prove to be the highest quality option in India. 7 P.7