THE DIFFERENCE IN NETFLIX’S CULTURAL ENVIRONMENT BETWEEN THE US AND INDIA

Brief history Netflix is an American entertainment services company that provides online videostreaming and videos on demand, founded in 1997 by Marc Randolph and Reed Hastings.Its headq

FOREIGN TRADE UNIVERSITY FACULTY OF ECONOMICS & INTERNATIONAL BUSINESS

THE DIFFERENCE IN NETFLIX’S CULTURAL ENVIRONMENT

BETWEEN THE US AND INDIA Lecturer: Nguyen Hong Hanh

Class: CTTTKT K56 - Group: 3

Members: 1, Nguyen Vu Ngan Hanh – 1711140028

2, Hoang Linh Chi - 1711140013

3, Dao Thuy Duong - 1711140022

4, Ngo Phuong Anh – 1717140004

5, Nguyen Phuong Linh - 1711140052

6, Vu Thuy Van Trinh - 17111400

Hanoi, September 2020

TABLE OF CONTENTS

I Overview of Netflix 4

1 Brief history 4

2 Vision and mission 4

3 American market 4

II Theoretical background 6

1 Definition of culture 6

2 Factors affecting culture (components of culture) 6

III. Impacts of cultural differences on Netflix’s business activities in India10 1 Habit of using credit card in India 13

2 Variety of languages requires diversity 15

3 Indian opinion on price 18

IV. Netflix’s adaptation strategy 19

1 Contents and subtitles adjustments 20

2 Price adjustments 21

V CURRENT PROBLEMS AND SUGGESTED SOLUTIONS 22

1 Results 22

2 Problems and suggestions 23

REFERENCES: 26

We will look most closely into the cultural difference between America and India and highlighting the importance of culture in international branching.

I Overview of Netflix

1 Brief history

Netflix is an American entertainment services company that provides online videostreaming and videos on demand, founded in 1997 by Marc Randolph and Reed Hastings.Its headquarter is in Los Gatos, California Initially, it was a DVD distribution company, hadonly 30 employees and 925 titles available At the time, it operated on a pay-per-rentalbasis The rate and maturity date are similar to that of its traditional rival, Blockbuster Theirsales method is to send DVDs to customers via email (DVD emailing) On February 25,

2007, Netflix distributed the billionth DVD At the same time, in the same year, Netflixcompletely restructured its way of doing business Despite being very successful with theform of DVD distribution via email, they also found that it would be replaced by videos onthe Internet (video streaming over the Internet), so they decided to make a change

2 Vision and mission

At the Consumer Electronics Show (Las Vegas), Reed Hastings, Netflix’s chiefexecutive, said: “Right now, you are witnessing the birth of a global TV network.” According

to the CEO of Netflix, his company has not only been successful in dominating the globalmarket, but also fundamentally changing the way customers use television Hastings said

he was aiming to invest in a core technology of online transmission "We hope to be able toshow exactly what shows you need based on your mood", he said

Netflix has also announced a mission that: "We are committed to providing ourcustomers with outstanding service, providing partners with values, giving investorssustainable earnings, growth prospects and enormous positive effects to employees”

3 American market

In June 2014, Netflix unveiled a global branding: a new logo, using a modern typefacewith drop shadow removal and a new website UI At the Consumer Electronics Show 2016,Netflix announced the expansion of major international services to 150 other countries Netflixhas maintained the expansion, today it operates in almost every country where the company can

do legally or reasonably In 2017, Netflix was present in more than 190 countries

Netflix begins streaming in the US.

Netflix starts to provide streaming services to international markets for the first time in Canada.

Netflix expands its services to Latin America, the Caribbean, Belize and Guianas.

Netflix begins expanding into Europe, launching in UK, Ireland, Denmark, Finland, Norway and Sweden

Netflix decides to expand slowly to control subscription costs, only extended to the Netherlands.

Netflix is already present in Austria, Belgium, France, Germany, Luxembourg, and Switzerland.

Netflix expands to Australia and New Zealand, Japan, Italy, Portugal and Spain.

Netflix announces that it is available worldwide except for China, Syria, North Korea and the Crimean territory.

Netflix confirms it has reached a licensing agreement in China for the content Original Netflix with IQiyi.

Table 1: Netflix market expansion timeline

By the end of 2019, the global number of Netflix subscribers reached 167.1 million,

of which 61 million were registered in the US A survey in 2019 by Statista also found that85% of Americans who use online video services are Netflix users Forecasts released atthe end of 2017 show that by 2023, the US will have the highest number of Netflixsubscribers in the world, with sources predicting a total of 69.1 million subscribers in thecountry Following closely will be the UK with around 12 million subscribers, while Mexico,France and India are expected to have fewer than six million Netflix subscribers by 2023

Figure 1: Numbers of Netflix subscribers in the US and globally from 2015-2019

(Source: Statista)

II Theoretical background

1 Definition of culture

Culture is one of those terms that has a number of meanings to it and yet it

is still notoriously difficult to define.

Clifford Geertz defines the concept of culture as follows: “It denotes a historicallytransmitted pattern of meanings embodied in symbols, a system of inherited conceptionsexpressed in symbolic forms by means of which men communicate, perpetuate, anddevelop their knowledge about and attitudes toward life” (Geertz, 1973)

According to Geert Hofstede, culture is “the collective programming of the mind that distinguishes the members of one group or category of people from

others [ ] the following four together cover the total concept rather neatly: symbols, heroes, rituals, and values.” (Hofstede, Hofstede and Minkov, 2010) Meanwhile, Zvi Namenwirth and Robert Weber see culture as “systems of ideas rather than

behavior or material or material artifacts” (Namenwirth and Weber, 1987).

Regardless, we should acknowledge the fact that cultures are unique in their own way and learn to respect them individually Just as world-renowned social psychologist Geert Hofstede once said: “National Culture cannot be changed, but you should understand and respect it.”

2 Factors affecting culture (components of culture)

a Language

Language is an obvious and most prominent way to distinguish countries and also one of the characteristics that help define culture We can learn a lot about a certain culture as we learn a language.

As means of communication, there are two types of language:

- Spoken language: helps demonstrate the way people perceive the world and acts as means of communication Spoken language has always been one of the defining factors of cultures There are about 7000 languages spoken today, showing the dynamic of the rapidly changing world.

- Unspoken language: refers to nonverbal communication Many nonverbal cuesare culture-bound For example, giving someone a thumbs up in the US and someother

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countries shows that you are satisfied or are agreeing with him/her; however,

in Greece, this gesture is considered to be obscene.

Religion has a huge impact on people's daily activities, their behaviors and thus affectsbusiness activities Things like opening or closing times, holidays, ceremonies, taboos, etc mustnever be taken for granted Therefore, business operating activities or marketing activities mustcater to the religion that is dominating the market in which the business is engaged in.Businesses that are thinking of expanding internationally must at least pay attention to these fourissues regarding religion: dominating religion; the importance of religion in society; the degree ofhomogeneity of religion; freedom of belief in society

c. Societal structure

The Hofstede model of national culture is a composition of six dimensions These cultural dimensions represent traits and preferences that could most likely distinguish countries from each other Hofstede’s 6-D model allows for comparative research by putting together scores for each nation (with 1 being the lowest and 100 being the highest on the scale) and thus facilitates cross-cultural communication and the international comparison between different cultures.

Figure 2: Comparison of India and the US according to Hofstede’s cultural dimensions theory

(Source: hofstede-insights.com)

The dimensions of national cultures are:

Power Distance Index (PDI)

Inequality exists among the fact that everyone is unique PDI expresses "the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally" (Hofstede, Hofstede and Minkov, 2010), addressing the fact that individuals in societies are not equal but more importantly, how a society handles inequalities among people.

People in societies where there is high Power Distance are more likely to accept hierarchy and hierarchical order without doubt or further justification In societies with lower degree of PDI, people demand justification for inequalities of power and thus attempt to equalize the distribution of power.

India scores high on this dimension, 77, indicating prominent hierarchy and a down structure This is not only salient in Indian families but it is also a thing in a lot ofIndian businesses where paternalistic leaders and managers assume the obedience of theirteam members and employees expect to be clearly directed and instructed on what isexpected of them Communication is top-down and oftentimes negative feedback is neveroffered up the ladder Control is common, and attitudes towards managers are formal

top-Individualism vs Collectivism (IDV)

IDV explores the “degree to which people in a society are integrated into groups” (Hofstede, 2011) Individualism can be referred to as the preference for a loosely-tied social framework where individuals are expected to take care of only themselves and their

immediate families Collectivism represents a preference for a tightly-knit framework in society in which individuals can expect relatives or group members to care for them in exchange for almost absolute loyalty (the word Collectivism has no political meaning as it refers to groups, not to States) In short, an individualistic society is an “I” society whereas acollectivist society is more like a “We” society

The relatively low score on Power Distance (40) and very high IDV (91) of the US trulyspeak for one of the most individualistic cultures in the world where there is an explicit emphasis

on equal rights in all aspects of American society Communication is less formal; in fact, for mostAmericans it is quite direct and expressive Managers and employees both expect to beconsulted by one another Employees are self-reliant and free to deliver their initiatives

Americans are deemed to be independent quite early in life; they are not shy about approaching others and strive for one’s own right.

Masculinity vs femininity (MAS)

The Masculinity side in this dimension is referred to as “a preference in society for achievement, heroism, assertiveness and material rewards for success”, while femininity is

"a preference for cooperation, modesty, caring for the weak and quality of life" (Hofstede, 2011) A masculinity society at large is “tougher” and more competitive whereas a femininity society is “tender” and more oriented towards living in harmony

The American society is more on the Masculinity side scoring 62 on the scale Thiscould probably be explained by the fact that it is one of the strongest nations as of now andthus with a diversified flow of labor, people are expected to carry the “strive to be the best”attitude in order to earn a place for themselves in this society

India is actually quite Masculine as well in terms of success and power Advertisingone’s success is widely practiced Work is oftentimes the center of life for many and beingsuccessful in the workplace could mean great respect from other people

Uncertainty avoidance Index (UAI)

The Uncertainty Avoidance dimension expresses "a society's tolerance for ambiguity"

- the extent to which members of a society feel uncomfortable with uncertainty and ambiguity

In other words, societies exhibiting high scores on this index are somewhat stiff andtightly regulated People have strong beliefs in absolute truth and that it is guidelines andlaws that are key to everything On the contrary, a lower degree of UAI implies societieswith fewer regulations and more acceptance towards different thoughts and ideas

Both India and the US have a low score on this dimension, indicating that there is a fairly high degree of acceptance of imperfections and new, innovative ideas People are open to trying new things and have greater tolerance of freedom

of expression and of different ideas and opinions.

Long-term orientation vs short-term orientation (LTO)

LTO deals with the way that societies maintain the links with its own past while taking on the challenges of present and future As a matter of fact, societies prioritize these two goals differently.

Societies that score low on this dimension prefer to maintain and honor traditions andnorms and are reluctant to societal changes On the other hand, high LTO societies usually take

a more pragmatic approach: they encourage adaptation and changes for the better; and effortsare put in modern education as a way to prepare for the prosperous future

Scoring low on this index (26), Americans may be open to new ideas and not rejectthem right away but they are prone to take time analyzing new information Americans arequite confident in a sense that they have strong beliefs in what they think is right; thus, withall that implicit bias, the analyzing process could take a long time One latest example isexhibited in the frustration of experts and authorized entities like CDC when trying toconvince Americans of wearing masks to mitigate the spread of COVID-19 despite all theapproachable studies and evidences already laid out in front of them

No dominant preference in Indian culture can be determined This is because

although Indians value traditions and ancestry, the concept of “karma” dominates Time is not linear and rather than opting for an exact life plan, one goes on discovering the right path as one goes along As a developing country where career success is respected, India

is quicker to adopt ideas and knowledge to better their lives

Indulgence vs restraint (IVR)

Indulgence stands for "a society that allows relatively free gratification of basic and natural human desires related to enjoying life and having fun" Restraint stands for "a society that controls gratification of needs and regulates it by means of strict social norms" (Hofstede, 2011).

The score of India, 26, means that it is more of a Restraint culture Indians are moreprone to working and control of desires Hence, indulging and leisure time are not theirpreference In contrast, the US is considered an Indulgent society Despite theaforementioned working attitudes, America is still one of those countries that are famous forits night parties and high rates of drug usage (Ritchie and Roser, 2018)

activities in India

An overview of Netflix’s performance in the Indian market

"India is one of our key markets," said Jessica Lee, Vice President of Communications ofNetflix Asia-Pacific region claimed - "You look at the population size, the growth of the

internet as well as the business opportunities in this country, the challenge is how to get the biggest 'pie' possible."

According to data from the World Population Report Research Organization based inthe US, in 2019 India has become the 5th largest economy in the world India is developing

an open market economy and its GDP in 2019 will reach 2,940 billion USD The report alsostated that in terms of purchasing power parity (PPP), the GDP of India is 10,510 billionUSD, ranking 3rd in the world The service sector of India is the fastest growing industry inthe world, accounting for 60% of the economy and 28% of the workforce

Apart from having a large population with a average age structure, India is a country with

a huge growth rate of internet users thanks to the capital flow from Silicon Valley as well asgovernment investments in an attempt to modernize the infrastructure of this country

Figure 3: India’s video streaming market, calculated for the year 2019, July 2020

(Source: Statista)

In 2016, Netflix officially launched in India with the ambition to acquire 100 million account subscriptions from this market At the end of 2016, Netflix recorded approximately 350,000 accounts, by the end of 2017, this number reached 500,000 accounts At the time, Netflix accounted for only a small portion of India's video streaming market with a market share of 1.4%, much lower than the market leader Hotstar and even lower than Prime video,Amazon's online movie software - which entered the Indian market roughly at the same time as Netflix Cultural differences were the biggest influencing factor that led to Netflix’s lackluster debut in the Indian market As of 2019, this figure rose to 15%, marking a two-digit increase, effectively dominating other local streaming services However, Netflix still falls behind Amazon Prime and Hotstar by a meagre 5% gap in usage

An overview of Netflix’s performance in the US’s market

In Netflix’s home market, the US, there exists a stalemate in market growth This slowdown makes sense, because in the US, people who want Netflix probably have Netflix already.

It is easy to see that Netflix likely isn’t going to get much more popular in the US overthe coming years But knowing that, it’s heading abroad with the hopes of defeating its biggestcompetitors - including Disney Plus - by rapidly gaining subscribers in large markets

Top analysts expect Netflix to continue growing at a solid pace, thanks to thisstrategy Additional proof came in the form of Netflix’s stock surging to a 52-week highearlier this week Netflix’s international subscribers are likely to increase in the next fiveyears Meanwhile, Nathanson also expects Netflix to slow down to around 1 million USsubscribers each year It is quite a departure from the 5 million average subscribers Netflixwas adding in the US between 2012 and 2018, as seen in the chart below

Figure 4: Netflix US paid sub adds (Source: Company reports, MoffettNathanson estimates and analysis)

Netflix’s US growth has already started to drop precipitously Between 2018 and 2019,Netflix saw a 55 percent decrease in net ads, only bringing in 2.6 million subscribers That ismore than 20 percent of HBO Now’s total US subscriber base (Can HBO Now survive HBOMax?, 2020) and nearly 10 percent of Hulu’s entire customer base (The Verge, 2020)

A slowdown in the United States makes sense: people who want Netflix probably already have Netflix Fewer people are discovering the service for the first time, and there’s now an abundance of alternatives to subscribe to.

While competition in the United States heats up and conglomerates fight for viewers’attention, there are two big markets that Netflix is focused on: international non-Englishmarkets that have high broadband penetration and mobile-focused countries Broadband

adoption is growing, and Netflix is already invested in regions like Germany and Japan where the company sees potential for bigger subscriber additions.

A diversification in markets could give Netflix a decided advantage over competitorslike Disney Plus That means experimenting with pricing strategies, increasing globallicensing contents (like obtaining exclusive rights to Studio Ghibli films outside the US), andtaking chances on original international series that might not have been picked up before.This scenario is already playing out Netflix released localized versions for sixdifferent markets it wanted to develop: the US, Brazil, South Korea, Mexico, Germany, andJapan Over the last few years, Netflix started establishing headquarters in prime marketslike Germany, Italy, Britain, and Brazil International series like Dark (Germany) and Elite(Spain) became international hits, according to Netflix, both domestically and abroad

The goal, according to Erik Barmack, Netflix’s vice president for international originals, is to “tap into new international audiences while also appealing to American Netflix viewers,” according to a 2017 New York Times article This is why consumers are seeing more of international programming on Netflix’s homepage

In short, Netflix is not concerned about losing its customers back home in the US.Now, the company is focused on expanding its customer network in other countries

1 Habit of using credit card in India

Netflix subscription requires credit cards as the only payment method in more than 190 countries in which the giant is located (Netflix, 2020) The content that is available to stream may vary by location, and will change from time to time However, this is a major barrier affecting the number of Netflix users in India.

Although considered popular in many countries and especially the large and mediumeconomies, in India - the world's 5th largest economy even under the influences of COVID-19(Word Bank, 2020) - the number of transactions made through credit cards is low compared toneighboring countries in the region In 2007, the total value of transactions made through Creditcards in Asia - Pacific amounted to 1.3 trillion USD, accounting for 30% of all transactions withcredit cards worldwide Japan was in the lead with 209 billion USD, followed by Korea with 203billion USD In India, this figure was only 2 billion (KPMG, 2009) The