Collateral Damage

In today's newsletter we will talk about the new problems plaguing Netflix and the potential rise in fuel prices.

The Story

Earlier this month, major telecom operators in India hiked data tariffs by as much as 41%. While this increase has had a visible impact on India’s internet population, there’s been some unexpected collateral damage on the side.

When Reliance Jio entered the market in 2016, it started offering high-speed internet at throwaway prices. This provided the perfect launchpad for millions of people to experience the internet for the very first time. It also got them hooked to streaming websites (Hotstar, Voot, etc) that offered access to content that was once available only on traditional medium — like the television. Long story short, India was now a breeding ground for the world’s largest media companies and Netflix was waiting on the sidelines.

It entered India the same year Jio started offering its data plans and soon started making big investments in creating new content that could appeal to the local Indian populace. Think Sacred Games. And sure enough, they were making some headway. But content play can only get you so far in the Indian streaming market. Its the price that’s the real driver here. Unfortunately, Netflix had subscription plans that were a lot more expensive than their counterparts.

So they decided to launch a one-of-a-kind mobile-only plan for India. While their regular monthly subscription costs around Rs. 500, the mobile plan will cost you less than half the amount. But the thing about content consumption is that the cost to the consumer includes both Netflix subscription and a good data plan that goes along with it. You cant really stream 1080p content if you are not paying for good internet. So even though they are trying to bring down subscription prices, they won’t really see major improvement if data prices keep trending upwards.

Netflix is trying to get ahead of the problem by slashing prices by as much as half, for people who sign up for 3 months or longer. Other streaming services are also offering big discounts on their subscription plans. But this unfortunate increase in tariffs is bound to cost Netflix some users in a market already choking with intense competition.

It’s all very unfortunate…

Fuel up

We all know the automobile slowdown isn’t getting any better. But it seems like it’s good intentions that are driving bad outcomes here.

In an effort to curb pollution, the Supreme Court recently ruled that automakers have to upgrade BS-IV engines to the more environmentally friendly BS-VI variants by April 2020. This decision inevitably forced many companies to invest heavily in changing their production processes in order to accommodate the newer engines. In fact, it's the reason why we are likely to see hikes in automobile prices come 2020 because automakers will want to recoup some of their investments.

But that’s not all. Turns out, BS-VI engines also use more expensive fuel as opposed to the regular run-of-the-mill stuff that we are accustomed to. Big oil companies have been making serious investments alongside the automakers to be able to manufacture this stuff. And right now there seems to be a concerted effort to push fuel prices higher so that these companies can recover a portion of their investment as well.

Unfortunately, they can’t do it without the government’s blessings. Currently, the fuel industry in India is deregulated. Meaning oil companies can set their own prices based on global trends. So the government doesn’t actually intervene here. However, since most oil marketing companies are owned by the government they can still influence prices indirectly especially if there are political compulsions on the side. And so the story goes that there’s been some lobbying to ensure the government allows for more flexibility in pricing.

So yeah, if the government relents, maybe we will soon start seeing higher prices on those BS-VI fuels. If it doesn’t relent, the oil companies will have to take a hit.

The End

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