Netflix bets big on Asia as it sees ‘significant potential’ in these markets

SINGAPORE — Netflix is betting big on Asia-Pacific by investing millions of dollars into original and licensed content in major markets like India, a senior executive at the company told CNBC.

When the tech company reported third-quarter earnings last month, it said nearly half of its paid membership growth came from APAC — the greatest share of any region. International expansion has been a major focus for Netflix in recent years, particularly in markets across Asia-Pacific since 2016.

Netflix focused on localization as it launched in the region, Tony Zameczkowski, vice president for business development in APAC at Netflix said in an interview in late October.

That included adding subtitles and dubbing in regional languages like Hindi, Malay, Korean, Japanese, Thai and Bahasa Indonesia. The company also made the app interface available in local languages.

“The other thing that we did these past four years is recognizing that this region is primarily mobile first, which is a big difference from any other part of the world,” he told CNBC.

The company has pushed mobile-only plans in places like India, Malaysia, Indonesia, the Philippines and Thailand, offering those subscription plans at below $5 a month. That’s a stark contrast with the kind of premium pricing Netflix has in markets like the United States, where a standard subscription costs about $14.

Zameczkowski said Netflix is “very bullish” about the kind of opportunity Asia presents. “Markets like Japan, (South) Korea, India, Indonesia are definitely markets where we see significant potential and we will continue to invest in those markets,” he added.

Due to high smartphone penetration and cheaper internet connection, more people are online for the first time in their lives, leaving the region with a large potential customer base that tech companies can tap into.

India, for example, has the second highest number of internet users behind China, with around 570 million internet subscribers and growing at a rate of 13% annually, according to EY.

EY added that localization and “differentiated content” are vital for firms to reach a broader set of Indian consumers, especially those outside the large cities.

Netflix for its part has spent $400 million in developing original content as well as licensing other content for the Indian market between 2019 and 2020. It has developed more than 40 pieces of original content in India, including the Hindi-language drama “Sacred Games” featuring high-profile Bollywood actor Saif Ali Khan.

“This market has been going through a fantastic transformation these past four years in terms of getting access to the internet, and making data cheaper with Reliance Jio,” Zameczkowski said, referring to the cheap mobile data offered by the Indian telecom giant Reliance Jio, which has allowed millions of Indians to connect to the internet for the first time.

“That has been great also for us because we do benefit on the great infrastructure, so that people can gain access to Netflix,” he added.

Netflix partnered with Jio to give free mobile-only subscription to postpaid plans starting at 399 rupees per month as well as free subscription to basic plans for Jio’s fixed broadband service, media reports said. That could help the company close 2020 with 4.6 million subscribers in India.

While Netflix isn’t available in China, the company has invested significantly to develop local content for the region. It has produced more than 200 original titles, including over 70 Korean live action and anime titles. The company has also invested more than $700 million in financing partnerships and co-productions in South Korea since 2015 and the country has 3.3 million paid subscribers as of Sept. 30.

In Southeast Asia, the company said it doubled its content catalog almost every year since 2016 and plans to add close to 500 titles from the region in 2020 alone. Like India, Southeast Asia is another lucrative market for companies due to its large population and the relative number of people who are just coming online.

A commonly cited industry study from Google, Singapore’s Temasek Holdings and Bain & Company predicted that Southeast Asia’s internet economy will grow to $300 billion by 2025. Video streaming and music subscription services are said to be popular among younger users, the report said.

But Netflix faces stiff competition from local, regional and international players, many of whom have deep pockets or are backed by large companies. They include Amazon‘s Prime Video, Disney+ Hotstar, HBO Max and regional players like iflix, which was bought by Tencent.

Zameczkowski said Netflix is competing against the entire entertainment category that include video games and other user-generated content. “Essentially, everything that attract consumer attention,” he said.

Competition is a good thing as it educates end users on the “value of paying for entertainment,” he added.

“If you look at APAC, we are still at the beginning of our journey and we still believe that there is a huge … opportunity there,” he added.

Still, total global paid net subscriber additions for the third quarter were only 2.2 million, which fell short of analysts’ expectations.

Tech investor Gene Munster said the streaming giant would need to evolve its business to keep delivering robust returns for investors. Though Netflix is a pioneer in the streaming space, Munster said he’s worried the company doesn’t have a clear path to augment its streaming business in a way that would continue generating the returns to which shareholders have become accustomed.