Why India Will Be a Key Battleground for Amazon and Netflix

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The country — home to 460 million internet users — offers huge potential for the streaming giants in a market at the cusp of a digital revolution that is driven by strong demand for locally generated content.

While China still remains a distant dream for Amazon and Netflix, 2016 will go down as the year when the two streaming giants set the ball rolling for a turf war in India as part of their global ambitions. Despite infrastructural challenges, India is home to 460 million internet users — second only to China at over 721 million — in addition to being a beehive of local content production.

If a launch strategy is any indication, Amazon raised the bar with aggressive pricing, a slew of content deals and the presence of some of its senior executives at its Mumbai announcement event Wednesday as part of Prime Video's global rollout in 242 countries.

As part of its 130-country rollout, Netflix launched in India in January, but without much fanfare.

Amazon directly attacked Netflix by offering Prime Video at an introductory price of rupees 499 ($7.50) per year, almost the same price as Netflix's basic monthly fees of rupees 500. Like Netflix, Prime Video is also offered for a free 30-day trial and offered free to Amazon's existing Prime shopping service subscribers. The pricing also takes on various competitors like ErosNow, owned by film major Eros International, which charges between 75 cents-$1.50 per month, and Hotstar, from Fox's Star India network, which charges about $3 per month for its premium service.

When asked how long the introductory pricing would last since the service's annual list price is $15 (rupees 999),  Amazon Prime Video India director and country head Nitesh Kripalani didn't give a time frame.

"We think long-term and believe that more customers should sign up and sample the service," he tells The Hollywood Reporter.

But the price war is only the beginning, with the real battle lines being drawn in content creation, which according to Mumbai-based entertainment industry analyst Jehil Thakkar "is going to be the real differentiator between all OTT platforms."

Netflix has so far announced its first Indian original, Sacred Games, which will be produced by Phantom Films, co-founded by filmmaker Anurag Kashyap. Phantom also has been signed by Amazon to produce two shows, Stardust and The Family Man. Similarly, leading Bollywood banner Excel Entertainment is producing three Amazon shows: Mirzapur, Powerplay and Made in Heaven.

"We have nine shows in production and nine others in development,” says Kripalani, adding that the local shows would begin streaming next year. He declined to offer a figure as to how much was being spent on the Indian productions.

Prime Video also has lined up forthcoming shows from banners such as Fission Features, backed by director Amit Kumar (Monsoon Shootout, which premiered at Cannes) and U.K.-based Oscar-winning director Asif Kapadia (Amy). The list also includes Bollywood actress Anushka Sharma's Clean Slate Productions.

On the other side, in terms of connecting its international content with India, Amazon Prime Video international vp Tim Leslie tells THR that the recently launched big-budget motoring show The Grand Tour "could include a future episode where the team [Jeremy Clarkson, James May and Richard Hammond] travels to India."

As for local licensing deals, while Netflix initially acquired some Indian art house films and a smattering of Bollywood and regional-language fare, Amazon's recent pacts include a bevy of catalog and new titles from leading banners including Dharma Productions, Vishesh Films and T-Series, among others.

However, just a day after the Prime Video launch, Netflix fired a salvo by announcing a licensing pact with Bollywood star Shah Rukh Khan's banner Red Chillies Entertainment, giving it global rights to recent release Dear Zindagi and catalog titles such as Happy New Year and Om Shanti Om.

In terms of U.S. content, both Netflix and Amazon are touting their respective originals. Prime Video offers The Man in the High Castle, Mr. Robot, Transparent, Mozart in the Jungle and The Grand Tour, among others, while Netflix's package includes the likes of Narco, Jessica Jones, The Crown, Sense8, The Get Down and more. Similarly, both also offer an assortment of licensed TV shows in addition to Hollywood and foreign films. Prime Video announced it offers content licensed from Paramount, Warner, Lionsgate and CBS.

But India is a market where local content rules.

According to a recent industry report by consultants KPMG India, U.S. and Western programming only commands a miniscule 0.5 per cent viewership share on Indian television, compared to over 60 percent for domestic entertainment. Similarly, Hollywood and foreign films manage a less than 10 percent share at the box office, though this pie is showing signs of gradual growth.

In this content mix, throw in the mass appeal of sports, such as cricket (a national obsession), and it's clear why India offers unique challenges.

Hotstar not only streams Indian and Western content — it has exclusive rights for such HBO shows as Game of Thrones, Silicon Valley and Westworld — but also a wide array of sports, such as the English Soccer Premier League, Wimbledon, Formula 1 racing and even the Olympics, since parent Star India's Star Sports network also holds broadcast rights for these fixtures.

"No other OTT platform in the world delivers this mix of entertainment and sports,” Hotstar CEO Ajit Mohan tells THR, pointing out that the platform also holds exclusive digital rights for some properties, especially cricket's popular Indian Premier League. Since its 2015 launch, Hotstar claims its app has seen 130 million downloads.

The IPL has become a hot property whose 10-year rights (broadcasting rights are currently held by Sony Entertainment Television) are up for renewal in 2017. Hotstar claims that in the major Indian cities, more people watched this year's IPL season on its service than on TV.

Recent unconfirmed local reports indicate that Amazon also could be joining the list of potential IPL digital rights bidders for the next round.

But Mohan is unfazed by the potential competition and says that while Hotstar is identified with sports, "Less than 15 percent of our consumption is for sports for which we have a compelling portfolio, but we have a platform that goes across movies and multi-genre shows."

India's evolving digital landscape has been likened to the early days of satellite television, which dawned in the 1990s as foreign broadcasters made a beeline to expand cable distribution and "sparked a new content production industry as is happening now for OTT platforms" adds Thakkar.

In addition to Fox's Star India, leading broadcasters have also launched OTT services such as Viacom18's Voot, Sony Entertainment Television's Sony Liv and Indian television giant Zee TV's Ditto TV. Also competing are the likes of Hooq, backed by Warner Bros., Sony and Singapore Telecom.

But the real challenge lies in wowing consumers to migrate to such services, with Indian users still largely hesitant to pay for digital content. This helps explain Amazon's price war for Prime Video. According to Boston Consulting Group principal Karishma Bhalla, "Pay TV offers over 200 channels at less than $5 per month, so the value proposition for OTT services is low as data charges are expensive in India."

Adds Mohan: "A lot of platforms in other countries grew because they had access to broadband services with no data limits, which is not the case in India.”

India has one of the lowest broadband speeds in the world, an average of 2 mbps compared to the U.S. average of 11.5 mbps. But the country's internet user base is still on a growth curve and expected to reach 730 million by 2020.

Going forward, data charges could also come down. The recent launch of Indian telecom major Reliance Jio, backed by India's richest tycoon Mukesh Ambani with a $22.5 billion investment, made headlines for offering rock-bottom pricing for its data services.

But content still remains the bigger challenge for OTT platforms. There may be a reference point in how foreign broadcasters eventually won over viewers, using local soap operas, Indian versions of global formats like Who Wants to Be a Millionaire and — of course — sports.

For their local launches, Amazon and Netflix have taken the obvious route partnering with established Bollywood studios and talent. However, the demand for content has also begun to benefit India's evolving independent scene, as underlined by Netflix's acquisition of titles such as Sundance hit Brahman Naman by edgy director Q (Quashik Mukherjee).

A large credit for the current evolution of India's new wave of filmmakers goes to Film Bazaar, the annual go-to event organized in Goa by the government's National Film Development Corporation, which runs a series of workshops and mentoring sessions. One of the projects that was partly mentored at the Bazaar was 2013 breakout The Lunchbox by director Ritesh Batra, which led to his first international project, the Jim Broadbent-starrer The Sense of an Ending. Batra is currently directing Robert Redford and Jane Fonda in the Netflix feature Our Souls at Night.

Reps from Amazon and Netflix have been spotted at Film Bazaar and the event's co-director Manas Malhotra tells THR that the streaming giants should also focus on nurturing new talent.

"Bollywood majors making content is not going to change the game, it has to be the unknown guy from a small town who makes a breakout film with possible global appeal," he says.

Malhotra also independently co-produced recent musical drama Jugni, directed by Shefali Bhushan, which was acquired by Netflix after its theatrical run. After it streamed on the service, he says it led to "a small, yet a good amount of people writing to us from various countries — someone from Canada said it was as if her story was played out in the film which was quite uncanny."