Netflix and chill

Be it flight delays at the airport, long hours on the road stuck in traffic or an awful headache after a long day at work, there is always room for Netflix, the online, video-on-demand streaming service that turned traditional broadcasting media on its head. It is nothing short of a game changer- a disruptive force that has significantly altered the way viewers watch “television” and film. There are no schedules, no long waits. Just pick whatever you want to watch, whenever you want, wherever you want, whether on your phone or computer or TV or just about any electronic device that supports audio-video and it’s ‘Netflix and chill’.

In 2016, Netflix announced its plans to expand into 130 countries outside the US. Bangladesh was on that list. The company hit a record 117.6 million active subscribers in the last quarter of 2017, with over 60 million subscribers outside of the US. While these figures are impressive, Netflix has been struggling in the Asia-Pacific region. China has a complete ban on the service and South Asia accounts for a small fraction of the total international audience. For example, in India, there are only 4.2 million active Netflix subscribers compared to he 63 million subscribers of the market leader, Star India’s ‘Hotstar’. One estimate puts the number of subscribers in Bangladesh at 200,000 only.

A recent debate regarding Netflix centers around how the company operates in countries where it is not a registered legal entity. This is of particular relevance to Bangladesh. Netflix operates under a subscription model: a user pays a fixed fee every month which typically ranges between USD8 to USD12. In Bangladesh, consumers are unable to pay for the service in the local currency. Therefore, access to an international credit card becomes a prerequisite. Although foreign exchange transactions are heavily regulated, the Central Bank currently allows online purchases of goods and services, with a USD300 limit on a single transaction. The caveat is that the card holders are liable for all tax or duty obligations.

At present, there are no clear tax obligations to using Netflix. It is estimated that the company generated BDT200 crore in revenue from its Bangladesh operation last year without having to pay any taxes. On the other hand, local Over-The-Top (OTT) media providers such as Bioscope, 3rdBell and Rabbithole are subject to local taxation laws on their services, which some people within the industry have termed ‘unfair’. However, the comparison between Netflix and local OTT media services is like comparing apples to oranges. Netflix is not a direct substitute for local on-demand video services – a Netflix user in Bangladesh is highly unlikely to switch to Bioscope or Rabbithole if Netflix is banned in the country.

The average Netflix user in Bangladesh is comfortable viewing content in English, actively follows original content on Netflix, has access to a Netflix account paid for using an international credit card and high-speed internet. These factors collectively restrict the proliferation of Netflix in Bangladesh to a very limited, urban-centric audience. Without any native content, it might take years before the service makes inroads towards the rest of the population. Given the limited scope, there may be no impetus on the media giant to comply with local taxation laws at least in the near future.

There may be positive externalities allowing Netflix to operate in Bangladesh. Popularity of online video streaming increases demand for high-speed internet which translates into more revenues for local ISPs and MNOs as well as creating a business case for further investments in telecom infrastructure in the country. In a country where digital payments account for only 9% of total transactions (refer to the article on Payment Ecosystems), the country needs services with value offerings significant enough for people to make the transition to digital payments. Even if Netflix is the sole reason for a consumer to pick up a credit card, it would be a step in the right direction towards a cash-lite society. Perhaps most importantly, Netflix provides strong incentives to create and share world class content from Bangladesh with the rest of the globe. Some people have already left lucrative advertising careers to explore just this kind of content creator opportunities.

Perhaps the government should adopt a wait-and-watch approach for the time being and not rush to limiting Netflix and the likes in Bangladesh. Incidentally, the government of Bangladesh loses BDT244 crore annually from illegally imported tobacco products. Perhaps, those who are concerened about Netflix tax evasion, ought to focus here as well!