Amazon rains on Netflix’s parade in this key market

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netflix (NFLX -1.04%) treats India as its next frontier of growth due to exploding demand for smartphones and the country’s rapidly growing middle-class population, but the streaming giant has its job done there.

The Indian over-the-top (OTT) video streaming market is a hotly contested space, with multiple stakeholders such as Amazon (AMZN -1.38%) trying to grab a slice of the pie. This forced Netflix to lower prices in india so that it can remain relevant in a price-sensitive market. The strategy has paid off well, as Netflix’s revenue in India has almost doubled in fiscal 2020. But Amazon is trying to shut down the Netflix juggernaut with its own pricing strategy.

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Amazon is playing smart in the Indian video streaming market

Amazon’s Prime Video service has launched a mobile-only plan for Indian customers. Priced at 89 rupees (about $1.22 at the current exchange rate) for a 28-day subscription, the package is currently available to prepaid subscribers of telecommunications giant Airtel, India’s second-largest telecommunications company, with nearly of 327 million users.

Amazon offers a 30-day free trial to prepaid Airtel users, after which they can opt for the mobile-only plan. However, there are some limitations to this plan. First, it is a single-user plan, so users opting into it cannot stream content to multiple devices at the same time. Second, it only allows users to stream standard definition content.

This is similar to what Netflix’s mobile-only plan offers, but there’s a big difference in price, as the company charges customers 199 rupees (about $2.72) per month. Amazon charges Indian customers less than half that amount, giving it an edge given the price-conscious nature of the Indian customer.

Additionally, Amazon made a smart move in partnering with Airtel for the initial rollout of the mobile-only Prime Video plan. This is because Airtel enjoys a strong position in India’s rural telecom market, with an estimated market share of 39% in 2019. The Broadband India Forum reports that rural India accounts for 65% of video consumption of the country even though it represents only 40% of Internet connectivity. .

The fact that Airtel is offering 6GB of data with the mobile-only Prime Video package could help both companies attract more users in rural markets due to low prices. India’s rural per capita income is only about 42% of urban per capita income, making Amazon a more logical choice for customers in these regions compared to Netflix.

Can Netflix counter Amazon’s deal?

Netflix is ​​said to hold a larger share of the Indian video streaming market in terms of revenue at 14%, double Amazon’s 7% share. It’s no surprise, as Netflix’s plans in India are at a high price compared to competing streaming services. But Amazon’s latest ploy could help the company boost its revenue share, as lower prices will make the Prime Video service accessible to more customers, especially in rural markets.

On the other hand, Netflix might not resort to price cuts to curry favor with Indian customers at a time when it is considering hiking prices elsewhere to compensate for a slower subscriber growth. However, the streaming specialist may have an ace up its sleeve in the form of regional and local content.

Netflix introduced a Hindi interface in India last year to expand its reach. It was a logical move, as more than 43% of India’s population speaks Hindi according to the 2011 census. Boston Consulting Group data.

Third-party data suggests that these strategies (including a budget, mobile-only plan) may have worked for Netflix in India last year, helping the company to more than double its paid subscriber base. The company plans to follow a similar strategy in 2021 with new local programming. A Netflix executive told India’s financial daily mint that the company currently has content in 11 Indian languages, while it can dub and subtitle in 32 languages.

Amazon, however, has moved ahead of Netflix in releasing India-specific content. It released 110 originals in India last year, overtaking Netflix. So Amazon could step up its game in India’s fast-growing video content market and eat into Netflix’s revenue share with the help of its new affordable plan that targets the right growth hotspots.

Amazon investors are going to like it, because the video streaming market in India could reach $4.5 billion in revenue by 2025, driven by a compound annual growth rate of 26% according to third-party estimates. Additionally, the company’s growing stature in video content may also help growth of its e-commerce business in India, making Amazon shares an ideal bet for investors looking to profit from the world’s fifth-largest economy.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Chauhan hard has no position in the stocks mentioned. The Motley Fool owns shares and recommends Amazon and Netflix and recommends the following options: January 2022 long calls at $1920 on Amazon and January 2022 short calls at $1940 on Amazon. The Motley Fool has a disclosure policy.

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