Movie-crazy Indians see Bollywood hits any way they can: crowding around family TVs, piling into dusty village cinemas and swank New Delhi multiplexes, borrowing bootlegged versions that friends stash in mobile-phone memory cards. They're just not in the habit of paying to watch online.
Kishore Lulla plans to change that before Netflix does.
Encouraged by an activist investor, the executive chairman of Eros International is making its Eros Now streaming service a priority -- shelving a plan to create an old-fashioned TV network to focus on video-on-demand optimized for mobile devices and priced for widespread adoption. The idea is to use the Mumbai studio's bulging catalog of more than 2,000 films and new, exclusive series to build a critical mass of devoted users before Netflix and Amazon plant their flags in the world's second-most populous country.
"We thought, 'We have the market share, we have the movies,"' Mr. Lulla, 53, said in his London office on the city's Georgian-era Manchester Square, looking every bit the mogul in a crisp, open-necked white shirt and slip-on shoes. "Why don't we create our own platform?"
Thanks to a production machine built by his father Arjan, who founded Eros in 1977, the company releases upwards of 70 movies a year -- more than any U.S. rival. Eros is "exactly where Netflix wants to be in the next three to five years," Lulla said. "I'm already there."
Since a largely marketing-free soft launch about a year ago, Eros Now has attracted more than 26 million users. The official hard-sell unveiling was in July, with promises that movies will be available to stream immediately after they hit theaters. Promotions tease new digital series including "Khel," a drama about "the twisted characters that populate the world of cricket," and "Ponniyin Selvan," based on a 2,000-plus-page novel about an ancient Tamil kingdom.
A basic, ad-supported tier is free, while premium services cost from 50 rupees (about 80 U.S. cents) to 100 rupees monthly. Prices are higher outside India, where there's opportunity in diaspora communities. In the U.S. it's $7.99 -- which happens to be Netflix's base cost.
But Eros Now can't be a straight-up Netflix clone. For one thing, there's the music. Songs from Bollywood films, set to elaborate dance routines, usually dominate the top of the Indian charts, so the app has sections for listening to tracks and watching music videos.
Monthly subscriptions would mark a 'cultural shift'
Macquarie Group has estimated Eros Now could have 40 million users in 2016 and 133 million in 2020, though with probably fewer than 10% paying for subscriptions. Still, counting sales from in-app transactions and ads, it could be booking just under $664 million in revenue in five years, more than double Eros's total 2015 sales.
Investors appear to like the strategy. Eros shares are up 59% in New York this year, giving it a market value of about $1.94 billion.
The company had been working on streaming concepts since 2005, but got a push this year from London-based Knight Assets & Co., which has built a stake of more than 2%. The investment firm, led by former Deutsche Bank trader Akshay Naheta and Mohsin Rashid, an ex-Bank of America Corp. investment banker, called for on-demand to be the core strategy.
Like Lulla, Knight has its eye on king-of-the-hill Netflix, which has more than 65 million subscribers in over 50 countries and territories and aggressive plans to be almost everywhere by 2017, with India on the list. Amazon's going global with its Prime video streaming service too. The two companies declined to comment.
Building a platform around the Eros library and production machine, which churns out everything from buddy comedies to sprawling historical epics like the pending "Bajirao Mastani," could create "an impenetrable content and customer moat" against the competition, Mr. Rashid said.
It will have to be a deep one: Netflix has said it will spend almost $5 billion on content in 2016 and is aggressively expanding productions tailored to markets outside the U.S.
There's homegrown competition too. Balaji Telefilms, whose upcoming features include "Turbanator," about a Sikh superhero, is planning a platform targeting millennials. Hooq, from Singapore Telecommunications Ltd., Warner Bros. and Sony Corp., kicked off in India this year.
None of them will have an easy time in a country where cable-TV providers struggle to sell low-cost bundles. "Getting people to subscribe on a monthly basis is a major cultural shift," said Aswin Punathambekar, author of "From Bombay to Bollywood: The Making of a Global Media Industry" and a professor at the University of Michigan.
Indians are schooled in downloading pirated films and swapping loaded memory cards to pop into their phones. Bought from kiosks for the equivalent of a few dollars, they're one of the main ways lower-income people consume movies and music.
For all that, it's easy to see why Eros is determined. Even with only 19% of people hooked up to the web, India has almost as many Internet users as the U.S., and their ranks are mushrooming.
The consulting firm EY ranks India as the second-most attractive emerging market in digital media behind China, citing its youthful population -- 46% of its 1.25 billion people are under 25 -- and smartphone penetration; Cisco Systems estimates there will be 651 million devices by 2019.
-- Bloomberg News