The first thing that comes into view as the camera pans up from the bottom of an austere tower block is the shape of a dog. “Do you believe in God?” asks the voiceover as the animal tumbles downwards. As the dog hits the ground with a dull thud, the voice intones: “God doesn’t give a f**k.”
With that noir flourish, stylistically familiar to audiences worldwide from hit shows such as House of Cards or Narcos, Netflix this month launched its first ever Indian-produced series, Sacred Games.
The show, based on the 2007 novel by Vikram Chandra, is an eight-part multimillion-dollar thriller set in the Mumbai criminal underworld, and featuring Hindi film stars Saif Ali Khan, Nawazuddin Siddiqui and Radhika Apte. But more than that, it is a statement of intent. Netflix, the streaming service with 125m global subscribers, views India as its next major source of revenue growth, not least because the country’s number of internet users has doubled in the past four years to 500m.
“Even we couldn’t have predicted the last two years of Indian internet growth,” Reed Hastings, Netflix chief executive, told a conference in Delhi this year. Talking about how the company had reached 125m subscribers, he added: “The next 100m is from India.”
Mr Hastings’s optimism reflects a mood among many western executives that after several false dawns this might be India’s moment. The country’s gross domestic product is growing at 7.7 per cent a year — faster than any other major economy — and while many think growth should be even higher, it boasts both a young population and a prime minister in Narendra Modi who wants to encourage foreign capital.
Consumer companies are keen to reap the rewards of India’s emerging middle class. Amazon has pledged to spend $5bn trying to become the country’s biggest online retailer. Its main challenger is Walmart, which this year made India’s biggest ever direct foreign investment with the $16bn takeover of Flipkart. Ikea is set to open its first megastore in the country next month.
“Not only is India large but it is growing so quickly,” Doug McMillon, Walmart’s chief executive, said the day after completing the Flipkart deal. “The middle-income progress that is being made in urban centres and rural areas is very exciting for us.”
But as many corporate rivals could tell both Mr McMillon and Mr Hastings, investing in India requires boundless patience and deep pockets, and even then may well be doomed to failure.
Not only are there the usual pitfalls of stifling bureaucracy, widespread corruption and unpredictable policy changes, but experts warn that many western companies misjudge their target market in India — especially when it comes to the so-called “middle class”.
Devdutt Pattanaik, a former executive at Mumbai-based Future Group, the retail conglomerate, says: “Western companies visualise the Indian ‘middle class’ as they view the western ‘middle class’, whereas in fact only the rich in India can afford most of the middle-class lifestyles of western cities.”
Netflix entered India in a blaze of promotion and with a bag full of cash. Advertisements for Sacred Games are plastered over the Delhi metro and close to the airport. Its executives speak with a familiar zeal about the potential of the Indian market — like many western companies it has been shut out of China and hopes India will help make up for the lost growth opportunity.
“We are carried away with enthusiasm by India,” says Todd Yellin, vice-president of product at Netflix. “We think it will be one of our biggest sources of growth over the next few years.”
The company believes that India, where audiences are used to lavish Bollywood film productions but mainly watch low-budget soap operas on television, is a vast untapped market for its brand of glossy, highly produced shows.
In its attempt to crack that market, Netflix is pursuing the same strategy that has earned it a $180bn valuation even before it makes a profit: spending big on original content in a variety of genres, and making the customer pay.
Alongside Sacred Games, it has made a collection of short films about sex under the title Lust Stories, and next month will release a horror series entitled Ghoul. And if anyone doubted its ambition, it recently announced a plan to turn Midnight’s Children, Salman Rushdie’s sprawling novel about India’s transition to independence, into a series.
The company has always been reluctant to disclose financial or viewing figures. But Anurag Kashyap, who co-directed Sacred Games, told the Financial Times he was given a budget equal to what he would spend on one of his films. His 2013 film Bombay Velvet cost $13m.
“Indian television would not risk itself with this,” says Mr Kashyap. “National television channels want to appeal to everyone. That means there is no space for anything new and we would have to dumb it down.”
Netflix does not carry advertising. So to fund productions such as Sacred Games, it is charging Indian subscribers between Rs500 ($7) and Rs800 a month, roughly what its western subscribers pay. Amazon, as a comparison, charges Rs129 a month for its Prime service, which includes streaming.
According to estimates by IHS Markit, a market research company, Amazon’s streaming service had 610,000 subscribers to Netflix’s 522,000 at the end of 2017. Hotstar, the market leader, which is owned by Rupert Murdoch’s 21st Century Fox, has 1.6m.
“We see this as a fairly broad product over time,” says Erik Barmack, Netflix’s vice-president of international original content. “A cinema ticket at a multiplex, combined with popcorn and travel, is equivalent to the price of a Netflix subscription per month.”
Driving success Suzuki
Entered market: 1981
Profit before tax of Maruti Suzuki 2017-18: Rs110bn
Suzuki entered India in partnership with the local company Maruti a decade before the country’s markets began to open up significantly to foreign capital. The company sold 1.8m cars in India in the last financial year.
Western consumer companies that have had success in India have, unlike Netflix, usually appealed to the lower end of the market. Suzuki, for example, turned its low-cost Swift model into one of India’s most popular cars. The company made Rs110bn of pre-tax profits in the country in 2017-18, alongside its local partner Maruti — nearly four times what it made five years ago. India is now the Japanese company’s biggest market.
Hindustan Unilever, meanwhile, in which the global consumer goods company owns a 54 per cent stake, has also focused on selling high volumes of relatively low-priced items, such as its single-use pouches of shampoo and face cream. The company made Rs72.9bn in pre-tax profits in 2017-18 — up nearly 70 per cent in the past five years.
But for every success story there are examples of multinationals that have failed to crack India. Often, strict regulations, stifling bureaucracy and capricious rule changes have been to blame — in part a legacy of India’s historic antipathy towards global capitalism.
Bumpy road GM
Entered market: 1995
Profit before tax of GM India Private: Not declared
GM’s presence in India has been a particularly bumpy ride. It has failed to capture more than a few per cent of the market with its Chevrolet brand, and suffered a high-profile embarrassment in 2013 when it had to recall 114,000 of its Tavera cars, citing issues with emissions.
Ikea, for example, announced in 2006 that it intended to open its first store in India, but then spent years trying in vain to persuade New Delhi to relax rules forbidding foreign companies from operating retail stores without a local partner. In 2009, it said it was abandoning the plans, but then revived them when the government eventually relented. Nearly 10 years later, it is finally about to open in the southern city of Hyderabad.
Meanwhile both Vodafone, the telecoms company, and Cairn, the British oil explorer, have been hit with retrospective tax claims for several billion pounds — which they have since spent years fruitlessly trying to appeal against.
The other big risk is that companies simply fail to understand who should be buying their products.
General Motors last year announced it would no longer sell Chevrolet cars in India after 21 years in the country, during which time it went through two joint venture partners, nine chief executives and more than $1bn in investment. Analysts say the company never produced the kind of cheap but heavily accessorised car that Indians really want.
And despite the fact that India is the third-biggest smartphone market in the world, Apple sold just 500,000 iPhones there in the first quarter of this year, according to Counterpoint Research — roughly the same as its sales in Malaysia or Mexico. Its iPhoneX costs about $1,500 in India — 20 times the cost of the cheapest Samsung.
Jayanth Kolla, partner at the Bangalore-based business consultancy Convergence Catalyst, says: “Western companies often get the Indian market completely wrong — though it is a failure more often made by American companies than European ones.
“American companies don’t seem to understand how fragmented and diverse India is,” he adds.
The problem for many companies wanting to sell to Indian consumers — especially at the premium end like Netflix — is that while the country’s middle-class is growing, it has nothing like the spending power of its western equivalent.
The country’s gross domestic product per capita, in purchasing power parity terms, last year was just over $7,000 according to the World Bank. In China, often touted as the model for Indian development, it was more than double that.
Economists Sandhya Krishnan and Neeraj Hatekar last year defined the “new Indian middle class” as those spending between $2 and $10 a day, some 600m people. Their French counterparts Lucas Chancel and Thomas Piketty calculated that to qualify among the top 10 per cent of earners in 2015, a person would have had to make around $3,000 a year — roughly the salary for a highly sought after job as a domestic worker in an affluent city.
Cleaning up Hindustan Unilever
Entered market: 1931
Profit before tax of Hindustan Unilever 2017-18: Rs72.9bn
Unilever has carved out a position as one of India’s biggest consumer brands, leading the market with products such as its Fair & Lovely face creams. It captured market share by offering its products in cheap single-use pouches, but analysts say the company has found it difficult to sell those customers higher-value items.
“There are about 50m Indians that would be global middle-class,” says Jayant Sinha, India’s aviation minister and a former finance minister. “That means they can fly everywhere in the country, they can fly internationally, they own a car, they have a stable job.
“Then we have an Indian ‘middle class’ of about 200m-250m people who have a stable job but not a well-paying one. They have many of the things you would expect a middle-class person to have: a refrigerator, a motorcycle, a smartphone, etc . . . Thereafter we have about 500m people who would be aspiring middle-class. They would probably just have a motorcycle.”
This is the challenge facing consumer companies spending big in India. Amazon is attempting to capture the market by discounting heavily and hoping it can outlast the Walmart-controlled Flipkart in a prolonged price war. Ikea is hoping to entice shoppers to buy its furniture, which at first will be imported and therefore relatively expensive, by stocking 1,000 items at below Rs200, from lightbulbs to small rugs.
For Netflix, if Mr Hastings is right that its next 100m subscribers will come from India, the company must sell subscriptions not only to every single member of what Mr Sinha calls “India’s global middle class”, but a considerable portion of those on lower incomes.
“If Netflix is looking at the most affluent 25m Indians, then it is doing the right thing,” says Mr Kolla. “Those people have probably heard of Netflix and are able to spend what they are charging. But if they are looking at the bigger India — 1bn or so Indians — they have definitely, definitely got that wrong.”
For directors and producers such as Mr Kashyap — who have been given big budgets for films before, but never for the kind of series in which Netflix specialises — the freedom is liberating. However, even as he praises his new paymaster, he identifies a major hurdle Netflix will face. “The problem,” he says, “is that India is a country where everyone likes everything free.”
Hyderabad Ikea bets on India’s rise in prosperity
Ikea’s new store in Hyderabad, which is due to open next month, will be unlike anything India has ever seen before. The size of a shopping centre, the outlet will employ 850 people and include a restaurant that can seat 1,000 people, making it one of India’s largest.
The strategy, says Patrik Antoni, the company’s deputy country manager, is to appeal to a broad range of incomes by selling cheaply-made domestic items alongside expensive imported furniture.
“Our goal is to reach out to all these people that normally would not take part in a shopping experience like Ikea,” he says. “We want them to come, so we’re creating an offering that is much more affordable at the lower range, and then maybe some products at the top that are a bit more expensive [than they would be elsewhere].”
But he admits that one of the company’s biggest challenges will be to avoid developing a reputation as a luxury brand.
“We need to work on how we are perceived,” he says. “We need to make sure that we are not seen as this expensive foreign brand that comes into the market, because all other foreign brands have been expensive.”
But like many of his corporate rivals, Mr Antoni says India presents a unique opportunity for his company, despite a decade of delays in opening. “There will be hiccups for sure, but no one would say that India will be a less prosperous and positive society by 2035 than it is today. No one believes that.
“For other countries, will they be better or worse in 15, 20 years? We don’t know. Take Europe as a market: will the kids of today be better off than we are? Maybe not.”
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