As Netflix and Amazon search for new users abroad, they are increasingly looking to India as a big market. Once crippled by poor internet infrastructure and low household income, the world's second-largest internet market has exhibited tremendous potential in the recent years. It's proving, however, to be a tough nut to crack for the American streaming leaders. Netflix, which aired “Lust Stories,” an anthology of four short films by high-profile Indian directors that breaks the taboo around women’s sexuality, in the country and elsewhere last month, is this week releasing its first original Hindi series for the country. Called “Sacred Games,” it is based on a novel by Indian author Vikram Chandra. Shortly afterwards, Amazon is scheduled to premiere “Comicstaan,” a series featuring a group of prominent comics from India who are tasked with finding new talent in the country. “Comicstaan” is the fourth original show Amazon has made for India, with seven more already in the works, Vijay Subramaniam, director and head of content at Amazon Prime Video in India, told CNBC in an interview. Posters of the new shows have started to flood bus stops, shopping malls and metro stations in several cities across the country. That aggressive play from the companies, both of which entered India in 2016, is becoming increasingly necessary: Amazon Prime Video and Netflix have long trailed local services in the nation, and that gap has only widened in recent months. Leading the pack is Hotstar. Owned by Star India, which is controlled by Twenty-First Century Fox, Hotstar had about 70 percent of the on-demand local streaming services market earlier this year, according to estimates by research firm Jana. The three-and-a-half-year-old service has 150 million monthly active users, CEO Ajit Mohan told CNBC in an interview. Netflix, by contrast, has fewer than one million subscribers in the country, according to industry estimates. Once considered a luxury, an increasingly growing number of Indians are giving online streaming services a try. Companies have taken notice: More than 35 streaming services have launched or expanded their businesses in India in the last three and a half years, with many more planning to enter Bollywood soon.

Digital signage for Netflix’s “Sacred Games” at a mall in New Delhi. Manish Singh for CNBC

Many of those services are owned by local television networks and production houses. Balaji Telefilms, known for producing some of the most watched family TV shows in India, has amassed over 2.5 million paying customers on ALTBalaji, a streaming service it launched last year, Nachiket Pantvaidya, group COO of Balaji Telefilms, told CNBC. India's online video market, valued at over $700 million, is expected to grow to $2.4 billion in value by 2023, according to research firm Media Partners Asia.

India's improving internet infrastructure

Much of the credit for the boom in streaming goes to the stark drop in India's mobile data prices. Reliance Jio, a telecom operator owned by India’s richest man, Mukesh Ambani, kickstarted a telecommunications price war in the nation in the second half of 2016, when it began offering a bulk of data at no charge to customers for an extended period of time. The months that followed its launch brought tens of millions of new users to the internet, and changed the way many consumed data. Thrifty Indians, once extremely conscious about each megabyte they burned on the web, are now reportedly clocking 1.5 million terabytes of data each month. Another barrier that has hindered the adoption of internet video services is pricing. Jehil Thakkar, an analyst with Deloitte consulting group, said Indians, unlike Americans, have had fewer incentives to flock away from cable TV. In the U.S., a monthly cable TV subscription could cost more than $100, making offerings by Netflix, Amazon and others quite appealing, said Thakkar. But in India, that price point has remained under $4 for the last two decades, he said.

Playing by India's rules

To lure customers, many services in India are aggressively priced, relying largely on advertising for revenue, said Frank Dsouza, an analyst with PricewaterhouseCoopers consulting group. Hotstar, unlike Netflix and Amazon, bandies out nearly 80 percent of its catalog at no charge to customers. For its premium offering, it charges about 199 rupees (roughly $3) per month. In comparison, the cheapest monthly plan offered by Netflix in India costs Rs 500 ($7.30). Amazon, for its part, has been very aggressive with the pricing of Prime membership in India. The service, which costs $119 a year in the U.S., costs Rs 129 ($1.90) a month or Rs 999 ($14.50) for a year in India. It includes access to Prime Video, Prime Music and faster delivery for packages. Hotstar’s Mohan said that many companies don’t realize that the price Indians pay for data access, however affordable that may have become, is still very material to them. “Unlike many of our competitors, we are not happy with building a small subscriber base. We’re not happy with offering a streaming service that appeals to a very small part of Mumbai, Delhi, and Bangalore,” he said. Netflix declined to comment on what it thinks of Mohan's views, its Indian pricing model or its plans for winning more market share in the country.

Netflix's approach

At an event in New Delhi earlier this year, Netflix CEO Reed Hastings wondered out loud if the land of Bollywood — which releases more than 2,000 movies in a year and sells more tickets than Hollywood, but generates only a fraction of its revenue — could be the place that gets his platform its next 100 million users. “The Indian entertainment business will be much larger over the next 20 years because of [investment] in pay services like Netflix and others,” he said. “Our strategy is to build up the local content, of course, we have got the global content as well, and really try to up-level the industry,” Hastings added, ruling out the possibility of his company lowering its price in the country. Netflix, in many ways, operates like Apple in India, which too, has a .

What India wants