Netflix has shifted from its anti-ad stance to launch a less expensive advertising-supported tier in the coming year.
The model that is ad-supported in India might aid Netflix attract new users to sample, and then moving to the premium category.
When it comes to advertising Netflix has an advantage over its rivals in the realm of top brands
For a long time OTT huge Netflix’s Chief Executive Reed Hastings continued to say that the streaming giant would not allow advertising since a free experience was among its main goals for consumers.
But, the things have changed and the dynamics of the market. Netflix was once a leader in cord cutting as well as the expansion in over-the-top (OTT) platforms in the very first instance, has lost subscribers in the past two quarters. After losing almost 250,000 members for the beginning quarter in 2022 Netflix lost more than one million subscribers during its second quarter.
With the increase in competition caused by the launch of brand new OTT services, the slowing of the effects of pandemics on growth, and other macroeconomic issues, Netflix has decided to change its previous strategy and to introduce the ad-supported service at a lower cost in the coming year.
Although the streaming giant already announced plans for advertising to their platform announced the details within it’s shareholders’ letters for the second quarter.
Netflix To Concentrate On the Long-Term Game of Advertising
In the beginning the company will begin in a few regions where advertising expenditure is substantial. It aims to create a better-than-linear-TV advertisement model that’s more seamless and relevant for consumers, and more effective for advertising partners.
Advertising is a lengthy game and the company recognized that. Although it may take time to build the base of the ad tier and to generate the ad revenue It is hoping to gain substantial membership by lowering prices and a rise in profits from revenues from advertising in the future. But the primary goal is to reach a larger group of customers by offering pricing that is lower for consumers.
Can Ad-Supported Model Help Netflix Achieve Scale In India?
Netflix was hoping to gain the next 100 million customers through the Indian market, but it has not had the chance to gain an impressive market share. Although the demand for paying has increased dramatically within the Indian OTT users however, the model of freemium based on advertising remains the dominant model in this OTT industry in India.
Although India has a current 100 million to video-on-demand (SVoD) subscribers and the figure is projected to rise to 224 million by 2026, as per Deloitte’s TMT forecasts for 2022. In spite of SVoD subscription growth advertisements-driven videos on demand (AVoD) is predicted to continue to generate more revenues than SVoD and will increase the market’s size to $2.4 Billion in 2026, up from $1.1 Billion in 2021.
In contrast to that, there is a strong indication that SVoD market is predicted to increase up to $2.1 Bn from $0.8 Bn in the current time frame.
According to the Deloitte report also stated it was estimated that the total OTT sector in India is projected to expand at a rate of over 20% to increase to $13 Bn between $15 and $13 Bn in the next ten years. Pricing innovation is one of the main elements driving the expansion in the OTT space, according to the report.
He also gave the examples of Netflix’s competitors, like Disney+Hotstar, SonyLIV, Voot, Zee5, which run on a freemium model and have the ability to gain large amounts of viewers. In India paying TV is also ad-supported according to him.
India is a market that is price sensitive and the customers are searching for value according to Karan Taurani who is the senior vice-president at Elara Capital. In this regard there is a desire for customers to see advertisements in the event that they’re asked to pay less.
Breaking the highly competitive Video Advertising Market
But, it won’t be simple for Netflix to capture market share of the advertising market. The current media advertising industry is dominated YouTube as well as MX Player which are aggregators and offer a broad range of video content, Taurani noted. The level of competition is competitive in the marketplace, and it’s the winner takes all market, he said.
The three main players that are MX Player, YouTube and Disney+Hotstar each are 65% of the market within the Indian video advertising market due to two aspects that are aggregation and sports. Broadcaster-based OTT applications too with an estimated market share of 3-4 percent because of its catch-up programming (the content broadcast on OTT after it’s been broadcast on television channels).
They haven’t been able to capture an increase in market share because their original content hasn’t been successful, Taurani said.
While Netflix doesn’t have the benefits of sports or content aggregation however, it does have a library of original, high-quality content that could place it in between the two categories – aggregators and broadcaster-led streaming services.
But, Sodhi said that the introduction of Netflix’s advertising-supported service will have a very small impact on other competitors. The customers will have greater choices of content He added.
Netflix To Attract Premium Brands
India’s advertising market is anticipated to outdo the global average since it is predicted to expand 16% by 2022 opposed to 8.7 percent globally according to the Global Ad Budget Forecasts’ report from Dentsu.
Although the market is predicted to be $11.1 Billion in 2022, with the majority of that coming from digital advertising, which is expected to grow 31.6 percent The report predicted substantial growth for that OTT segment.
With a metro-centric, premium consumerbase, Netflix has advantages in taking on premium brands since its target audience has a large appeal to premium companies, Taurani said.
It should be noted it has been the case that, in past Netflix has collaborated worldwide with a variety of premium brands, including H&M, Nike, and Levi’s but only for promotional purposes but not in-app advertisements.
To increase its competitiveness to gain a competitive edge in competition in Indian OTT market Netflix has already cut prices for India and also introduced plans that are mobile-only. Despite all its innovation but it’s far in the back of Disney+Hotstar in the market share of SVoD. While Disney+Hotstar is the leader in the market with a 50% share, Netflix has just 8 percent, according to an analysis by OMDIA.
With regards to downloads of apps, Netflix is not even among the top 5 OTT applications in the Indian market, as per an EY-FICCI report. Therefore, it is yet to be determined if the ad-supported model can assist Netflix gain more customers in the country , or if it’ll have to make a an overhaul to its strategy for content.