Editor’s note: This is part two of this series. Yesterday, we looked at what went wrong with Netflix’s global numbers. 

First, the big picture: Why foreign subs matter

Slowing growth: Netflix’s subscriber numbers were skyrocketing year-on-year until 2021 came along. Over the past five years, Netflix has added an average of around 27 million subscribers annually—adding up to a total of 222 million today. But in 2021, there were the first signs that its growth was slowing—adding only 18 million in 2021—which is less than half of the 37 million it chalked up in 2020.

The key reasons in numbers: 

• It has already tapped out the US and Canada market—which only accounted for 1.28 million new subscribers in all of 2021 out of a total of 18 million added. 
• In fact, more than 90% of its subscriber growth was international last year, compared to 83% during 2020. 
• Here’s an ever bigger data point: According to a recent industry report, Netflix has 101.8 million potential subscriptions left in their top 20 countries—but only 6.6 million of those are in the United States. 

Point to note: Global subscribers are now so critical to the company that US shows are under pressure to attract new overseas subscribers. 

So when Netflix announced in January that it would add 2.5 million new subscribers this past quarter, they weren’t slated to come from the US/Canada. Therefore, if the company has suddenly decelerated into negative growth, the answers for the failure lie overseas—not in its domestic market.

India: Whither the 100 million grand plan?

The big 2018 moment: Netflix set up shop in 2016, but the peak India moment came in 2018—when CEO Reed Hastings swept into the country and grandly declared: “Given the consumer base, the next 100 million for us is coming from India.” While he wouldn’t reveal its India numbers—estimated at 500,000—Hastings said: 

“What we can tell is that the international segment as a whole is over 60 million and grown over 40% year over year. India is a key part of that, and we are continuing to see that success throughout the world.”

A healthy start: that rosy outlook seemed justified. Growth was doubling from one quarter to another—and it accounted for more first-time Netflix subscribers than Germany, France, Spain, Italy, and the UK combined. These were the heydays of ‘Sacred Games’, ‘Ghoul’ and ‘Lust Stories’—when novelty and quality were the company’s friends. Even in 2020, US analysts triumphantly claimed: 

“In most tier three markets, [India, Egypt, Vietnam are some examples] Netflix faces no real competition as a digital provider of a high volume of premium television and film. Not only does this mean subscriber adoption is easier and churn is lower, but the quality of the company’s offering is stronger as it collects most of the best licenses (it also means they don’t pay enormous sums for these licenses, either).”

The rocky road to 2022: Netflix India numbers were expected to hit 4.6 million by December 2020—thanks to a big tie up with Jio. And it was projected to reach 6.1 million in 2021. None of that happened, so the company slashed its prices by 60%–-unveiling a much cheaper Rs 199/mo plan last December. Even in January, however, Hastings was uncharacteristically open about the India problem:

“The great news is in every single other major market, we’ve got the flywheel spinning. The thing that frustrates us is why haven’t we been as successful in India, but we’re definitely leaning in there.”

Where it is today: *5.5 million subscribers. Nowhere close to Hasting’s 100 million. And nowhere close to Disney+ Hotstar’s 45.9 million or Amazon Prime’s 15 million. More importantly, its rivals are growing much faster. Disney+ Hotstar added 2.6 million subscribers in the first quarter of this year. Whereas Netflix lost 2% of its Indian market share in the same quarter—despite cutting prices. That said, some analysts still expect Netflix to hit 8 million by the end of the year—but that was before it revealed its first quarter results. 

*Netflix does not reveal its India numbers—and these are estimates of industry analysts. 

Why India matters: Bloomberg News puts it plainly:

“The stakes are higher than ever. Slowing subscriber growth has investors worried, and the company’s share price has fallen almost 40% so far this year, wiping out more than $100 billion in value. To keep growing, Netflix will have to find customers in Asia, the Middle East, and Africa. There’s no bigger prize than India, the second-most populous country in the world. The only nation with more people, China, has blocked every major streaming service.”

Also, the big fat Indian market: India currently has around 102 million video streaming subscribers—and this number is estimated to grow to 224 million by 2026. The streaming industry is expected to grow between $13-15 billion over the coming decade. More importantly, while streaming only has a 7-9% market share in India’s $27 billion Media and Entertainment industry today. That number will jump to 22-25% by 2030—while TV will drop to 24%—of an M&E market worth $55-70 billion!

Point to note: The task of winning over India is all the more urgent for Netflix which has now lost subscribers in its previously hot overseas markets—including Europe and Latin America.

Why did Netflix stumble in India?

That’s the 100-million subscriber question. Let’s start by revisiting the supposed secret sauce of Netflix’s global strategy. 

Global-to-local movement: Back in 2018, the Harvard Business Review wrote a gushing piece on Netflix’s expansion into 190 countries in just seven years. And it identified the key to this “exponential globalisation”:

“Netflix has demonstrated that developing country-specific knowledge is critical for success in local markets. This knowledge needs to be both broad and deep, extending across political, institutional, regulatory, technical, cultural, customer, and competitor domains. Understanding local cultures ensured that Netflix could be sensitive to and respond to their differences. This enhanced its credibility and helped it forge smooth relationships with key stakeholders.”

Elite-to-mass movement: The other key tactic is to start elite and move to wider audiences:

“Netflix’s formula for international expansion, which has worked everywhere from Canada to Japan, starts by targeting wealthy, young consumers in large cities who’ll pay to watch ‘Stranger Things’ or ‘Narcos’. Then, to reach progressively larger audiences, the company hires a local team to commission projects from the country’s biggest producers, offering them creative freedom they wouldn’t get elsewhere.”

In India, both of these core strategies were either poorly executed or never attempted. Why is that?

A leadership mess: Netflix India did not have its own Mumbai-based head until three years after it launched in India. In 2019, when Monika Shergill was appointed to lead India, she replaced LA-based Simran Sethi—who was the de facto chief in her position as creative director, international originals. And Sethi chose to leave Netflix rather than move to Mumbai to head the India office. FYI: even Netflix’s first Indian director split her time between India and LA—and finally quit to join a Hollywood studio. In other words, Netflix has long struggled to find leaders who are actually invested in the Indian market

Also this: The Shergill experiment doesn’t seem to have worked out in terms of subscriber growth or employee satisfaction. As The Morning Context notes, when Srishti Arya was suddenly sacked in May 2021, it marked the the seventh director-level exit from Netflix India in about 18 months. There have been many complaints about Shergill’s management style, but here’s what’s notable about her tenure: She is solely responsible for sending the second season of the wildly popular ‘Delhi Crime’ into limbo and the total hash made of a ‘Baahubali’ spinoff—after spending $13 million (Rs 100 crore) on the project. More on Baahubali later.

The big name obsession: To be fair, Netflix has always thrown money at the biggest names in the entertainment business—be it Martin Scorcese or Ryan Reynolds. But it has therefore missed out on some of the biggest hits in recent years—including ‘Mirzapur’ and ‘Scam 1992’—that have nothing to do with big Bollywood names. The worse its performance in India, the more it doubled down on this strategy: “For the smallest of roles, while developing the scripts, the company has wanted big names.”

Too elite: The service is still associated with global series like ‘Squid Game’, ‘Money Heist’ and ‘Narcos’, as one Indian film critic puts it: “Netflix is still perceived as an upmarket, expensive service. It is still seen as foreign.” But its Indian content isn’t exactly relatable for many Indians either. And that may have to do with who is making the calls at the top:

“Additionally, ‘sweet as they are, there seems to be a lack of understanding of the pulse of the Indian market. Most references and feedback, even for the pitches around smaller towns, are from the US shows,’ says a second executive working with the team. ‘And then there is general confusion over what is required.’”

Also, meet Bela: Indian-American Bela Bajaria was appointed by Co-CEO Ted Sarandos as head of global TV precisely because of her experience in overseeing non-English content. But she has had the final say on Netflix India content from almost the very beginning. Bajaria personally claims credit for one of the few out-of-India global hits, ‘Indian Matchmaking’. But look at the India numbers for the series: It was watched by only a quarter of subscribers in the first four weeks. Even Netflix’s other recent hit—‘Decoupled’—focuses on an upmarket couple in Gurgaon. FYI: Shergill reports directly to Bajaria.

Too expensive: Yes, at Rs 499/mo, Netflix is still more pricey than Disney+ Hotstar which costs only Rs 1499/yo. But this may be the problem that Hastings is trying to solve with his recent announcement that the company is considering a cheaper ad-driven model. But the question is whether Netflix can create the content to attract the millions of Indians—who don’t share the same tastes as its upper middle class, metro-centric fans. Especially those who don’t speak Hindi.

The Bollywood obsession: This may be Netflix’s biggest blind spot. Its India leadership has long been very close with the industry—and that cosiness has blinkered it to the rest of the country. Netflix seems to have mistaken ‘Indian’ content for ‘Bollywood’ content. No, one Malayalam swallow like ‘Minnal Murali’ does not make a summer. Not when you hire a Bollywood fatcat like Karan Johar to make an execrable ‘South Indian’ movie like ‘Meenakshi Sundareshwar’—without a South Indian star in sight.

Point to note: Despite its Bollywood obsession, Netflix picked up only 20 of the top 100 theatrical films based on domestic box office in Hindi since 2018—while Amazon Prime Video bought 48. In fact, its Indian content doesn’t seem to be doing well in any language. Of the top 15 Hindi-series on subscription streaming platforms, only one ‘Kota Factory’ is from Netflix.

Whither South India? That blind spot becomes painfully obvious when you see Netflix’s offering outside Hindi. It can keep grumbling about Amazon Prime’s delivery bundling—or Hotstar’s cricket licences. But here are the damning stats:

• Amazon Prime Video offers a staggeringly wide range of programming in 10 Indian languages—and owns 40% of all blockbuster films in Indian languages. 
• Zee5 claims almost 50% of its viewership comes from non-Hindi content, while it accounted for 40% of Hotstar’s viewership back in 2019. That number is likely higher now.
• When it comes to Telugu films, Netflix bought just nine titles, against 40 by Amazon Prime Video. Zee5 bought twice that number.
• Amazon Prime has also figured out how to take non-Hindi content to a national, even international audience. It bought the rights to movies like ‘KGF’—which set up the huge success of ‘KGF 2’—and paid for direct-to-streaming superhits like ‘Jai Bhim’. The latter was #1 on IMDB’s list of most popular Indian movies of 2021.

Why this is an epic fail: For starters, the share of regional language consumption on OTT platforms will cross 50% of total time spent by 2025. South Indian movies are not only trouncing Bollywood at the box office, but their appeal on streaming has spread far and wide. Fifty percent of the audience for movies in Tamil, Telugu, Malayalam and Kannada come from outside their respective home states—and international viewers already account for over 20% of their total audience. FYI: West and north Indian states like Maharashtra, Uttar Pradesh and Delhi NCR accounted for 75% of viewership for dubbed South Indian films.

Last, a Baahubali example: In case you think  ‘Meenakshi Sundareshwar’ is an outlier, see how Netflix managed to botch one of the biggest franchises in Indian filmmaking history. It bought the rights for a two-season prequel titled ‘Baahubali: Before The Beginning’. This was going to be the big game-changer for Netflix—which would create the first Indian Marvel-like universe. Then this happened:

• For inexplicable reasons, the man behind the movies’ success—SS Rajamouli—quit the project, as did the original production company Ark Media. 
• Still, two well-known South Indian directors Deva Katta (“Prassthanam”) and Praveen Sattaru (“Guntur Talkies”) co-directed one season—and it was in post-production. 
• But Ms Shergill did not like the final result—and decided to flush $20 million down the drain. 
• And now guess who’s in charge: Bombay Fables best known for making ‘Decoupled’. Enuf said.

The bottomline: We’ll leave you with this photo of Sarandos’ trusty lieutenant Bela Bajaria who recently flew into Mumbai—presumably to turn Netflix India around—and her company’s flailing global numbers. She spent Sunday at a party thrown in her honour by Karan Johar. At the bash: The who’s who of B’wood royalty, including Alia Bhatt, Ranveer Singh et al.

Reading list

Bloomberg News and BBC News offer the most recent reports on Netflix’s struggles in India. Entrackr has a good take on why Netflix India has failed to produce global hits. Outlook magazine looks at the criticism that its India content is “too woke.” The News Minute has an excellent critique of South Indian content on streaming platforms. The Morning Context (paywall) has the inside scoop on the rising discontent with Monika Shergill—both inside and outside the company. LA Times has an upclose profile of Bela Bajaria. Our Press Decode podcast features an excellent discussion on Netflix India’s woes in February.