After General Motors, Ford, and Tesla, another American giant has hit a wall in India.
On September 23rd, according to Reuters, the Indian government is investigating Netflix.
According to an email from an Indian official cited by Reuters, the Indian authorities have received detailed information on Netflix's improper operations, visa violations, tax evasion, and incidents involving racial discrimination in India.
Nandini Mehta, a former executive who left Netflix India in 2020, said she is also suing Netflix across the ocean in the United States, accusing it of wrongful termination and racial and gender discrimination.
As of now, Netflix denies the allegations against Meta and claims to be unaware of the Indian government's investigation.
On September 13th, an Indian director accused Netflix's popular drama series "Squid Game" of plagiarizing his work, and the director is also suing for compensation.
India has always been seen by Netflix as the next major growth market. Faced with this series of troubles, can Netflix handle it calmly?
Constant trouble
Netflix's "Squid Game" is popular worldwide, but in India, it has become embroiled in plagiarism controversies inappropriately.
According to Bloomberg on September 13th, Indian film director Soham Shah sued Netflix in federal court in New York, accusing "Squid Game" of "blatant plagiarism" of his 2009 film "Luck" and demanding compensation for losses.
Suham said that his movie "Luck" tells the story of a group of debt ridden and desperate people who are induced to participate in a series of competitive games. He believes that the main plot, characters, themes, atmosphere, setting, and event sequence of "Squid Game" are astonishingly similar to "Luck", and Netflix continues to release derivative content such as reality TV shows and immersive experience activities, which constitutes a continuous infringement of his copyright.
The Indian director has filed a lawsuit for unspecified damages and requested the court to prohibit Netflix from profiting from "Squid Game" in the future. A Netflix spokesperson stated that the Indian director is "baseless" and that "Squid Game" was created and written by South Korean director Hwang Dong hyuk. Netflix will fully defend this fact.
The plagiarism scandal has not yet subsided, and on September 23rd, Reuters reported that the Indian government is investigating Netflix.
Deepak Yadav, an official of the Foreign Regional Registration Office (FRRO) of the Ministry of the Interior of India, said: "We have received detailed information about Netflix's improper operations, visa violations, tax evasion and other acts, as well as the racial discrimination incidents involved in the company's business in India." He expressed concern about Netflix's violations.
A Netflix spokesperson stated that the company is "not aware that the Indian government is conducting an investigation," but emails from Indian officials show that Netflix is facing increasingly strict scrutiny in India.
Starting from 2023, Netflix will also face tax requirements from the Indian government. In May of that year, it was reported that India planned to impose taxes on Netflix's local operations. The Indian tax department stated that this US based company has a permanent establishment in India and needs to undergo tax assessment.
This means that Netflix will need to pay two types of taxes: first, income tax, and second, "tax equivalents", which refer to value-added tax or consumption tax levied on imported goods and may involve other taxes.
In addition, Netflix may also face stricter content censorship from the Indian government. According to Reuters, in July 2023, a meeting minutes and sources from the Indian government revealed that India had informed other streaming platforms such as Netflix and Disney that their content would need to undergo independent review before going live to confirm if there was any inappropriate content.
Is localization strategy effective
Netflix, which has rich localization experience in multiple countries, has not had a smooth journey in India.
Netflix entered the Indian market as early as 2016, but did not immediately achieve success. Until 2021, its co-founder Reed Hastings admitted that it was still exploring the situation in the Indian market.
In fact, after entering the Indian market, Netflix invested heavily in hiring Bollywood directors and actors in an attempt to replicate Bollywood films, but they found that this strategy did not work. Indian consumers are not easily conquered - audiences who enjoy going to the cinema may not necessarily enjoy sitting at home watching Bollywood musicals.
After realizing this, Netflix began to choose more localized content, producing drama, romance, and thriller films in Indian language. The more successful ones are "Sacred Games" and "Cricket Boys".
Even though Netflix focuses on localization, there are still many users who believe that it is not sensitive enough when producing content, and some content may provoke anger from Hindus. In addition, similar to other countries, the platform's popularity and network infrastructure in India also constrain Netflix's promotion in the region.
Netflix also found that the purchasing power of its target user group in India is far inferior to other regions, such as Japan and South Korea.
In order to attract more subscribers, the monthly fee can only be significantly reduced. In 2021, Netflix announced a 60% price reduction for its India region, resulting in a monthly subscription price of only 149 rupees (approximately RMB 12), which is the lowest among users worldwide.
In order to further increase its user base, Netflix will expand its password sharing ban to all countries, including India, in 2023, restricting users from sharing passwords with people outside of their homes.
A Netflix account is intended for use by a household. Everyone living in the household can use Netflix anywhere - at home, on the go, on vacation - and use new features such as transferring personal profiles and managing access and devices, "Netflix said.
Under the influence of various strategies, Netflix's performance in India has grown. As of June 2024, India has become the second highest market for Netflix's newly added paid subscribers. According to a letter released by Netflix to shareholders, India ranked third in terms of revenue growth percentage in the second quarter of 2024, but specific numbers were not disclosed.
According to Media Partner Asia (MPA) estimates, Netflix currently has 13 million subscribers in India. Compared with other international markets, Netflix's subscriber base in India is significantly lower, accounting for no more than 6% of the total subscriber base, and its revenue is also a small base. This low base is a key factor leading to its high growth rate observed in India.
Moreover, a large portion of users tend to choose cheaper mobile packages or basic packages. According to Bloomberg, about 40% of new users have chosen cheaper and more favorable service options.
Until today, Netflix's market share in India remains lower than its competitors, Disney's Hotstar (38 million users) and Amazon's Prime Video (over 20 million users).
For Netflix, the Indian market is large and attractive, but it requires a strong focus to maintain growth.