Netflix, the American internet video company, is said to be in talks with Reliance Jio for a  partnership in India that could leverage the latter’s market penetration, two sources close to the development told FactorDaily.

One of the sources, an executive with one of the two companies said, the two “have been in discussion for a few months, but the deal is yet to be finalised”.

He added that the broad contours of the arrangement can range from Netflix giving its entire catalogue to Jio and charge a royalty fee or to give selected content that would appeal more to Indian viewers. “They have also discussed sharing of original content,” said the source.

The Hindustan Times newspaper on Tuesday had reported that Jio and Netflix are in talks for a content production and distribution partnership.

Netflix CEO Reed Hastings on a visit to New Delhi in February said he sees a potential of 100 million customers in India. “The next 100 million is from India. We are at 120 million across the world,” he said.

Jio is an obvious partner for any content company. The Mukesh Ambani-promoted telco has undoubtedly been the biggest reason for affordable wireless internet connections in India — giving rise to wide adoption of 4G services and data consumption. It is doing that by pumping in millions of dollars. It forced incumbent operators to slash prices of 4G services and improve their networks.

To put Jio’s rise in context — average monthly data usage per subscriber was 239.82 Mb in July to September, 2016. Jio launched services on September 5, and 14 months later in December of 2017, average monthly data consumption grew nearly eight times to 1945 Mb, shows data from the Telecom Regulatory Authority of India (TRAI). A larger share of the growth has been on high-speed 4G services — critical for Netflix-like streaming services.

Video, meanwhile, has been driving data penetration of data. According to KPMG, since the launch of Jio video streaming apps have witnessed 336% rise in usage. In 2016, video streaming made for 49% of data consumption in India and is expected to reach 75% by 2021.

Netflix’s discussion with Jio is a step forward to realise the potential of video consumption. Jio offers a deep penetration in Indian masses — more than cable TV has been able to reach. There are 100 million homes in India connected with cable TV. Jio alone has 170 million subscribers — all of who can watch movies, sports and serials for free (Jio will introduce subscription charges later). “Reliance Jio wants to build the largest catalogue of streaming content, not only in India but also across the world,” said the second source.

He added that Netflix offers a wide coverage of international content as well as Indian language content, but has not been able to become as popular as some of its rivals like Amazon Prime and Hotstar.

“Lately Netflix has not tasted success because they have stuck to the premium tag,” said Hanish Bhatia, senior analyst with Hong Kong-headquartered research firm Counterpoint. “Netflix is at least three times more expensive than its immediate rival.” The service comes at around Rs 500 a month.

The result: Netflix, according to a publication by Counterpoint in December, has only five million monthly active users. “In a market like India, you have to reach the masses. Jio is the right platform to reach to the masses,” Bhatia said.

With rivals like Voot, Hotstar, Amazon Prime, Sony Liv, among others, doubling down on the video business, the OTT video business is expected to grow 35% year-on-year. At present, the size of the industry is relatively small at $280 million.

Jio wants to capitalise on the growth and changing user behaviour. “The mobiles are becoming the primary and the personal screens. People are spending less time sitting together and watching television — it is slowly becoming a personal phenomenon,” said Arvind Singhal, chairman and managing director of management consultancy firm Technopak.

The second source said that the financial details of the Netflix-Jio deal haven’t been finalised. Jio did not respond to a set of questions sent to it. A Netflix spokesperson said, “We are unaware of any such partnerships.”

Other aspects of the partnership at this stage can range from sharing of customer insights to improve user experience, co-developing original content that will be exclusive to Netflix and Jio, and Netflix charging a royalty for providing content to Jio.

“Jio might also look at tiered subscription service with Netflix on board,” said the second source. A tiered subscription would mean that Jio might offer different subscription plans for different kind of consumer — the one with the Netflix subscription might be the highest. However, the source did specify that no decision has been made on that.

Netflix has partnered telcos such as Vodafone India and Bharti Airtel in the past but those were more in the nature of customers getting to sample the video streaming service.

What really works in India is free content. “People still have access to torrents, people sharing videos on Shareit,” Bhatia said. Video content on Jio is free and the Reliance Industries conglomerate can keep it like that for as long as it wants. Netflix will only benefit of it.

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