It is little surprise Netflix has followed its Indian lead by launching a mobile-only service in Malaysia just three months later, albeit at a slightly higher rate of just over $4 a month. For India’s notoriously low ARPU market, Netflix was forced to cut its subs to the bone of around $2.90, given that even some full-blown pay TV packages cost little more than that. At least Malaysian ARPUs are a little higher but even there Netflix has been forced to mix it with local operators coming in around that price or even a bit less. It will still find the going tough given that Malaysia is the home of iflix, billed as the Netflix-killer of SE Asia after its launch in May 2015.
Iflix has had time to bed in and establish packages tuned to the Malaysian market through several steps after the launch, the first being the ‘Playlists’ feature introduced in August 2016, comprising curated playlists of film productions featuring over 150 celebrities across SE Asia, as well as ‘Collections’ based on moods and popular themes. Then in August 2017, iflix launched its Channels with curation, packaging its entertainment with greater personalization and recommendations tuned to users’ preferences and viewing history. Finally, in March 2019, iflix branched out into live sports with a free-to-air linear channel called ZSports, available in Brunei, Indonesia, Thailand, Cambodia, Vietnam, and Myanmar, as well as Malaysia, via the iflix Live streaming service.
The key challenge for Netflix is that iflix covers all bases. It offers a competitive ad free SVoD package at the higher end comprising all VoD content for about $2.70 a month. It also offers a subset of its content free, including some originals, rather like the Spotify model but with a commitment to move away from the sub model over time. That is slightly surprising because it would seem that offering cash-free and ad-free options gave iflix the best of both worlds, appealing to those mostly higher net worth customers who hate viewing ads in VoD content, as well as the larger rump in Malaysia for whom paying is equally abhorrent.
It could be said then that Netflix is left high and dry, stuck with its subscription-only model which is also 70% more expensive than iflix. Netflix is hoping that it has cut prices enough to avoid being trapped completely in a race to the bottom in these SE Asian fast-emerging markets for video and that its premium contact will still draw in significant numbers from higher income groups.
This has hopes of moderate success given the expanding middle classes in many of these countries, with economies still growing at well above global average rates. Its gains in Malaysia are modest but at least sustained, passing 300,000 this year at around 50% growth rate, but still only around 10% of iflix, not counting free viewers. Iflix is now on about 28 million active subscribers across all of SE Asia, more than twice a year ago.
Netflix is also struggling to achieve the desired momentum in India with its far larger population of 1.34 billion against Malaysia’s 31.1 million, on course to triple its membership over 2019 to around 4 million by year end. It is facing a crowded market where it contends with pay TV operators and Bollywood giants in alliance with strong mobile operators, all competing with very low subs. Furthermore, both Amazon and Disney are already there on the VoD front, although with different models. Disney’s Hotstar is ad-supported and has gained huge traction from holding rights to Indian Premier League (IPL) cricket content, with viewership for other content much lower and profitability elusive on account of the amount paid for those IPL rights. Amazon’s Prime video customers are hard to count because some members are primarily interested in the retail products and other services, but it is probably at least double Netflix.
Netflix is no doubt hoping that there will be a swing towards SVoD in India, even though iflix is betting on the opposite direction. Netflix may have taken heart from a prediction made by India’s movie production company Eros International that SVoD is going to sweep forward and overtake AVoD in those countries. Faultline reported on this only 7 weeks ago and so do not want to rehash the whole argument here. The main line from Eros, backed by some others in the long-form video business such as Uday Sodhi, head of digital business at Sony Pictures Networks India, is that as video migrates from mobile-based 4G services to fiber smart TVs more conducive for SVoD, favoring more consumption of longer form video, more people will be willing to pay to avoid ads, especially within movies and TV shows.
They may cite China, where paid subscriptions are already a lot higher and rising faster, set to pass 300 million by the end of 2019, up from 230 million at the end of last year, according to a report by Chinese consultants Entgroup. This we know is being driven by growth in China’s upper middle class, which has shifted to content enriched SVoD services, away from AVoD.
But India is different with less indication that video will migrate rapidly from 4G to fixed broadband in large volume. Smartphones seem to have gained unstoppable momentum for video consumption, which is still rising fast on mobiles even among affluent groups and even where fixed line penetration is high.
Furthermore, while India’s economy is growing fast, its wealth distribution will remain skewed towards a relatively small percentage – if large number – of the affluent middle class. Evidence from other countries suggests that AVoD has appeal among lower income groups and that will remain a very large number in India.
What is true then is that AVoD will continue to be the most popular model for streaming video consumption in India for the foreseeable future and cast its shadow over an admittedly expanding SVoD rump. This shadow will keep prices depressed and so Netflix will have to survive on substantially lower margins than elsewhere and be happy just to be in the black. On the plus side, Netflix has proven pedigree laying down strong roots for local original content production, although even there it is playing catch up with Amazon in India.