Lessons from Netflix Naija
Growth
Although the US and Canada remain Netflix’s biggest user base with over 70 million subscribers, there was a concern before the pandemic that growth in both these markets had slowed. It does appear that recent subscriber growth in these markets which was driven by lockdown keeping individuals at home has begun to plateau. Netflix’s most recent quarterly results showed that subscriber growth was less than expected and appears to have plateaued in the US/Canada. Growth now appears to be coming from international markets such as Asia and Africa where Netflix is trying to expand.
Netflix recently announced its presence in Nigeria via Twitter and various deals have been made with leading content creators including Star Wars star John Boyega. This is part of the company’s strategy to increase the size of original content from the continent and consequent subscriber growth.
Just as in Egypt and South Africa, Netflix has decided to experiment with a mobile-only subscription plan in Nigeria on a trial basis. The announcement of this initiative offers an opportunity to explore 3 key aspects which affect Netflix’s foray into fast-growing markets on the African continent.
Digital Infrastructure
A large swath of populations in Africa are now consuming content via their mobiles, this is no surprise given the median age population (more on this later) who are technologically savvy. Nigeria for example has one of the biggest internet populations with over 126 million internet users. Similarly, Kenya has just over 40m users and it has been coming up with innovative ways to increase more rural access to digital content. Other fast-growing markets such as Tanzania and South Africa also feature as countries with a large number of internet users.
Further favourable conditions for Netflix’s expansion also include the fact that mobile phone subscriptions continue to rise rapidly on the continent. Subscriptions have grown from 87 million in 2005 to 760 million in 2017 according to the Africa Development Bank. Our previous article also highlighted the importance of mobile transactions and opportunities for FinTech. Targeting the abundant mobile user base might be the most desirable strategy for Netflix as an entry point. However, aside from exceptions in some markets such as Nigeria, internet on the continent is still incredibly expensive and reflects the scarcity of fixed-line broadband.
In 2018, the Alliance for Affordable Internet revealed statistics that showed that some of the countries with the most expensive internet are fast-growing emerging markets on the continent such as Angola and South Africa. On average, it would cost Africans 9% of their monthly income for 1GB of mobile data compared to 3.5% in Latin America. Therefore, digital infrastructure will need to be improved to accommodate streaming services and the wider digital economy. Aside from government investment, drawing on the private sector would be an ideal solution and social media companies such as Facebook have been the forefront of increasing internet access to expand their user base. Facebook is currently developing a 23,000 mile undersea cable to supply fast internet to 16 countries in Africa. The 2Africa project will support the growth of 4G and 5G and deliver internet capacity to millions of households.
Netflix will also have to ensure that at present, its technology is affordable towards users data plans. Its strategy will of course be dependent on each market rather than a monolith, it might be prudent to rely on pre-existing structures provided by competitors.
2. Competition
Netflix faces the challenge of prying away loyal customers from their competitors who include, pay-tv satellite companies, Youtube or existing streaming services such as Iroko in Nigeria. The biggest competitor on the continent is Multichoice who serve 20 million households across 50 countries. In comparison, Netflix only has 1.4 million subscribers.
Although Multichoice struggled to incept its streaming services, it blamed much of this on the lack of internet access across different markets. Instead of trying to compete with a new entrant such as Netflix, both companies have instead decided to partner together. Multichoice will integrate Netflix within its streaming service. The creation of this synergy undoubtedly has mutual benefits, Netflix gains access to a pre-existing wide user base which continues to grow, Multichoice had a 5% growth in subscriber numbers in its year-end results. Thus, Multichoice gets access to content in the zeitgeist which would also attract new users and their propensity to pay for Multichoice’s premium packages.
However, the coronavirus pandemic will place pressure on consumers and consequently subscriber growth figures for various streaming services. Affordable pricing will be of the utmost importance if Netflix wishes to grow its user base and pry them away from competitors. In Nigeria, the mobile-only plan is set to be priced at 1,200 naira, this is still more expensive than Iroko which has an abundant library of Nollywood films. It’s still a million-dollar question whether Netflix’s investment in A-list content creators for Netflix Naija will be enough to turn consumers away from other platforms such as Iroko.
3. Demographics
Statistics on Netflix’s demographic numbers are hard to find but from surveys and research conducted it appears that Netflix is most popular among the under 35s. Thus there is an opportunity for Netflix to grow in a region such as Nigeria where the median population age is in the 20s.
One survey showed that the Netflix user base was often a representation of the wider populace, therefore, it seems inevitable that Netflix would be able to attract a large proportion of the median age population who are economically active and internet users.
The challenge will be ensuring that the median population can pay and that subscribers are not limited to the upper echelons of society who can afford to splurge on luxury items. This probably reflects the fact that wider income levels will need to be increased if consumers are to invest in streaming services and wider premium TV packages. Unlocking the potential of the digital economy will be key to accelerating growth.
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