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The Netflix mantra: Shock, awe and Monetise

Uninhibited by rising debt, Netflix is riding a tsunami of content in its push to stream to the world

On July 6, Netflix put out its first original series from South Asia. Set in India with mentions of Dubai, Egypt and Pakistan, Sacred Games is a spiralling saga of corrupt officials, gang mafia and politics in the subcontinent, based on Vikram Chandra’s critically acclaimed book of the same name released back in 2006.
And while it stars at least two of Indian cinema’s biggest names – Saif Ali Khan and Nawazuddin Siddiqui – there is nothing Bollywood about it. Freed from censorship, India’s version of Narcos is all about gratuitous violence, substance abuse, expletives, human trafficking and religious tensions in the country.
Sacred Games has been translated into English, Turkish, Spanish, and Arabic. The hope is that it will introduce a whole new generation of viewers to content from the Middle East and South Asia. And this is all part of Netflix’s global content strategy, something that so far has been unrivalled in terms scale and ambition, by any Film, TV or production company before or since.
“Great stories travel and they could be of many different types,” Netflix CEO Reed Hastings tells Digital Studio ME at a company event in Rome. “There’s still a taste for real storytelling. And quality content that’s widely distributed, helps us grow and grow.”
The shock, awe and star power of the series makes it “probably the most high-profile content that has been made,” Girish Menon, who tracks media and entertainment for KPMG, told AFP. “Others have not been on the same scale.”

Building a global brand
Unlike any content company in history, Netflix doesn’t rely on syndicated content dubbed into local languages, or on feeding audiences a mix of their own local productions interspersed with ever reliable English content. Instead, its variety of content includes Korean soap operas that are then translated into Danish; Danish dramas into Arabic; and Arabic content into English. By doing so it is introducing an audience of more than 125 million, growing at roughly six percent per quarter, to a literal world of content.
Netflix now counts half of its audience, and its revenues, from international subscribers. However, that segment only amounted to about 137,000 subscribers in the Middle East until last year. Boosting those numbers is crucial to the company’s viability, as it is to any company that relies on subscriptions. In the Middle East, Netflix signed a deal with local pay TV giant OSN in February to provide the latter’s subscribers with access to the streaming platform’s content.
Now, it’s pumping money into its original content business. And the streaming platform is going all out to unleash a whole new generation of content hitherto untapped in the Middle East.
Some of those plans in the region include Lebanese comedian Adel Karam’s stand-up show about life in the region that hits close to home; Ali’s Wedding which is about the son of a Muslim Iraqi cleric in Australia who lies about being a doctor to charm the girl of his dreams against his parents’ wishes; and TV series Fauda which depicts the Palestinian conflict in often brutal detail.
“We’re looking at many options,” says Hastings, when asked about how Netflix can tell which shows work in the region. “You need to keep having great shows, shows that everyone’s talking about.”

Retaining customers
Keeping people talking is an essential part of Netflix’s business strategy. The company does spend on out-of-home advertising to draw audiences in places such as Mumbai and Hollywood where audiences have historically associated movie theatres with big budget blockbusters. But the most important part of the business growth strategy is word-of-mouth, according to Hastings.
“It is fundamental to how we grow and also retain members. No one really joins the platform for just one show. Audiences have been hearing about Netflix for a while perhaps and want to go see one of the more popular shows. But that’s just the trigger that gets them over,” he says, before outlining how crucial it is to keep them coming back for more. “We’ve learned that when people use Netflix a lot and watch a lot then we are able to retain them as customers. If people stop watching Netflix then they may decide to cancel.”
Having Sacred Games translated into Arabic, as well as English, Turkish, and Spanish will do well toward securing Netflix a larger Middle East audience. Indians, after all, account for the largest expat population of any country in the Middle East. More buzz with Indian content will inevitably mean more Indian original programming, which is then translated into Arabic. And it’s a similar story with Arabic content translated into other languages.
“Focusing on making our current members happy is how we really grow. Once again, it’s through word of mouth,” says Hastings. “It’s viewing history that we rely on… and we do get feedback when something is very successful and what we should do more of. I think we’ll be successful with how we’re doing it right now because we keep investing in these local shows and that is helping us connect with people.”

Beyond home entertainment
The Netflix approach of tapping into the novelty of cultures and storytelling around the world to drive user growth – and connecting cultures in the process – offer valuable lessons to more than just the content industry.
Christoph Mueller, chief digital officer at Emirates, possibly the world’s most innovative airline, cites Netflix as a company that carriers should take cues from.
He even surmised how connecting Netflix accounts with the airline’s loyalty programmes could help build on Emirates’ own inflight entertainment offering and get more people to fly with it. “It’s extremely difficult to stream,” acknowledged Emirates president Tim Clark in a recent interview, “[but] there’s a groundswell of opinion that suggests that we should be streaming Netflix onboard.”
While he might just be thinking out loud at this stage, his words point to possible future avenues for expansion.

Going concern
The big question for Netflix, however, is whether it can sustain its content acquisition tsunami at the cost of the sky-high pile of debt it’s accumulating. Industry analysts have voiced concerns over Netflix’s high debt levels but the company itself doesn’t seem too perturbed. Spending money to make money is the model it needs to attract, retain and monetise eyeballs, it says. At the end of March, it’s cashflow stood at minus-$2bn with more than $12bn in short/long-term debt. In April, the company announced it would raise another $1.5bn in debt to finance its programming needs, the second time in less than 12 months.
The Netflix business model of massive investment in content relies on remaining in constant high-growth mode. That means continuing to acquire new subscribers steadily, quarter after quarter. Although plans have been announced for a premium service, the low-cost nature of the subscription service requires inexorable growth to pay for its content.
Netflix stock fell more than 14% in after-hours trading after the company missed Q2 2018 subscriber growth forecasts by 1 million. The company still added 5.2 million new users globally, which, given its base of 130 million, hardly amounts to a crisis, but Netflix is having to work ever harder to gain new subscribers.
“Netflix’s big challenge is maintaining growth worldwide while its customer base saturates in core western markets,” says Richard Broughton, analyst at Ampere. It’s getting tougher because the “easy” subscribers in the US and major western markets have mostly been converted, so the next millions of subscribers will come from the harder to convert emerging markets in Asia and Africa. With a content budget rising in recent years by about $1bn annually, Netflix risks getting stuck in a costly and precarious cycle.
No doubt, Netflix is the pay-TV disrupter that everyone is watching. Will they move into the domain of traditional paid for TV, by adding global news and big ticket sports events to their content offering? With deep pocketed rivals like Amazon and Disney preparing to challenge Netflix, the entire media & entertainment industry is waiting to see their next move to sustain the growth story.
With a market valuation already just shy of matching Disney’s, it doesn’t seem as if Netflix is about to stop splurging on content any time soon.

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