As the year comes to an end, you might just want to hit the bar and party hard to forget what the world has gone through. But you can’t, because the episode is not over yet. Just when we were dreaming of the happy ending of 2020 with vaccines, the year-end brought in another climax with a new variant emerging in the UK and yet another wave across Europe. With countries going into recession, industries struggling to survive the century’s most horror episode, 2020 has been a blockbuster year for OTT!
The number of paid subscribers for the Indian OTT space increased by 30%, from 22.2 million in March to 29.0 million in July. - IBEF 2020
As opposed to the traditional cable where you have to watch TV programs according to their air time, over-the-top or OTT content can be accessed anytime through an internet connection, and consumers get to choose what they want to watch.
The prevailing pandemic and growing internet penetration have led to a rapid paradigm shift in the Media and Entertainment industry, and these changes are here to stay in the post-pandemic world as well.
Let us rewind a few years and show you the journey of the Indian OTT industry.
India’s OTT Journey
The India-Australia 2015 world cup semi-final was seen by 50 million viewers on Hotstar, just over a month after its launch - the highest for a digital broadcast of a sporting event in global history.
Hotstar launched in 2015 just 2 weeks before the 2015 Cricket world cup with a library of movies, TV shows, and live sports. India’s love for cricket helped Hotstar hit 2 million downloads by the tenth day. Soon after, Netflix and Amazon Prime entered India to capture the market. In the meantime, Jio’s launch entirely changed the industry landscape. Number of broadcasters and production houses like Zee5, AltBalaji, and Eros Now also followed suit and brought vast content with a regional focus for the data-hungry consumers.
To tap into this opportunity, content distributors also entered the space in 2018 by partnering with the OTT platforms. TV and smartphone manufacturers started providing pre-loaded streaming apps, further driving video consumption. All three telecom players came up with their own bundled plans (through Airtel Xstream, Vi Movies and TV, Jio TV) offering premium services like Netflix, Amazon Prime, and Hotstar to the customers. Though OTT players now had access to much wider audiences, their margins reduced significantly because of cheap bundled prices. From Computers to TVs to Mobiles, OTT players haven’t left any stone unturned to reach the consumer.
COVID came as a blessing in disguise for the OTT industry. “Stream and Chill” became the only entertainment option for the population and even film producers turned to OTT platforms to release their movies digitally.
Let us now take a deep dive into how exactly does the Indian OTT industry operates.
OTT Ecosystem in India
India is the fastest-growing OTT market, and its revenues are estimated to increase from $0.8 Bn in 2019 to $2.9 Bn in 2024 with a CAGR of 28.6%. - PwC Global E&M Outlook 2019
Cheaper data tariffs have led to increasing OTT penetration in rural areas. Not surprisingly, around 90% of the total ~250 million active OTT viewers watch content in regional languages. As of 2019, Indians consumed nearly 11 GB of data per month and two-third of this was spent on video content! With changing consumption patterns and every OTT player partnering with telecom, broadband, and DTH players to reach customers in any possible way, OTT seems to be more of the future of traditional cable TV than its replacement.
The ecosystem is divided into three major categories - SVOD (Subscription video on demand), AVOD (Advertising-based video on demand), and Freemium.
Players like Netflix and Amazon Prime that offer premium content adopt the subscription VOD model. Customers are charged monthly or annual fees to access the content. With increasing demand, many OTT players are focusing on producing original content with a focus on regional content. Some players such as SunNxt (Tamil, Telugu, Kannada, and Malayalam) and Hoichoi (Bengali) offer specific regional content, while players like Alt Balaji, Eros Now, and Zee5 offer content in multiple languages.
Though increasing internet penetration and shifting consumer consumption patterns are helping SVOD players grow their customer base, partnerships with telcos, hyper-competition, piracy, and account sharing habits of Indians negatively impact the profit margins. Since audiences in India are more sensitive to prices, it becomes a challenge to offer quality content at a reasonable price to acquire and retain the customers.
Ad-based VOD is essentially the most popular model since it offers free access to the content. Companies make money through advertisements (usually video) shown in between the videos. While acquiring customers this way is relatively easier, an OTT platform cannot sustain itself purely on this model while competing with the elephant in the room - YouTube, which has 325 million monthly active users in India.
Because of this, many of the OTT players like Hotstar, Sony Liv, and Zee5 follow a hybrid approach or Freemium model. They offer basic content free of cost and charge customers for the premium content. Advertising is also much cheaper than traditional platforms like TV, compare INR 0.5 per view for a 10-sec ad with INR 5000 per second for TV. Targeted advertising based on viewing history and cheaper rates makes OTT an attractive place for companies to promote their products. Hotstar leads the race in this category with 300 million users (as of 2019), double that of Netflix’s users globally.
In 2019, India’s box office revenues ($1.6 Bn) were nearly double the SVOD revenues ($0.7 Bn). Changes due to the shutdown of movie theatres and direct-to-digital movie releases have ensured SVOD players gain revenues at the expense of box office collection. And this gap is expected to widen further in the coming years. Box office collection will decline with a CAGR of -2.6%, while SVOD is expected to grow at a whopping 30.7% in the next five years. Though not obsolete, theatres may just reduce to become a place where people go for experience and we should not be surprised to see big blockbusters releasing online.
With this plot in mind, let us now discuss some of the movie’s most important characters - Netflix, Hotstar, and Telecom players.
Starting with DVD rentals, Netflix switched its gears to streaming services in 2007 and has emerged as the largest digital media and entertainment platform with a market cap of $227 Bn!
But Netflix has been struggling for a long time in India. Netflix India has just 2.4% of its global subscriber base. Intense competition and the availability of content on alternate platforms are making it even harder. To put things into perspective, Hotstar has 26 Mn subscribers, almost 3x of Netflix (4.6 Mn) and Amazon Prime combined (4.4 Mn). The ARPU of $5 per month is also significantly lesser than its global ARPU of $12.6.
As the market did not seem to get any kinder, Netflix decided to pivot its strategy. To attract more customers, it came up with a mobile-only plan of just $2.7 (INR 199) per month. Netflix also announced its $400 Mn investment plans to keep the content game strong and that’s more than 3x of its 2019 revenues. Last year, it went all out and invested $13.6 Mn (INR 100 crores) for Sacred Games season 2. To put it into context, Bollywood’s big-budget film costs around INR 90 crores.
Much like festive season sales by e-commerce companies, Netflix came up with 'Streamfest', offering free services for a week during 5-11 December. It witnessed more than 0.8 million app downloads in the first two days itself. Shortly after, Amazon Prime followed suit with a 30-day free trial.
Though all the efforts have somewhat helped Netflix witness exponential growth in the revenues, it remains to be seen how far it can go with all this cash burn.
Disney+ reached 86 million subscribers merely a year after its debut in November 2019. Disney+ entered India with a $71 billion cash deal with 21st Century Fox, which owns Hotstar and Tata Sky. To satisfy Indian needs, they started offering their English content dubbed in Hindi, Tamil, and Telugu. Hotstar Specials - Hotstar’s original content is also available in seven Indian languages. Cheap subscription plans and a wide variety of offerings ranging from sports to movies to TV shows have helped Disney+ Hotstar maintain the leading position in India’s competitive OTT market. Hotstar makes up 21% of Disney+ total subscribers, contributing the most to its growth during the lockdown. ARPU for Disney+ Hostar also improved to $2.19 per month in the recent quarter - a significant increase from $0.71 in the previous quarter.
Since its inception, IPL has been a trump card for Hotstar. Hotstar earned INR 600 crores from advertising during IPL 2019, 20% of Star India’s total revenues from IPL.
Disney+ Hotstar signed contracts with 7 movies for direct-to-digital release before March 2021. Its biggest hit “Dil Bechara” was watched by 95 million viewers within 24 hours, breaking records set by Game of Thrones. Assuming INR 100 per ticket, this would have resulted in a box office collection of INR 1000 crores on the first day! Wonder how this can benefit Hotstar? Well, if Hotstar succeeds in converting even 1% of the viewers into subscribers, it will lead to revenues of INR 38 crores (9.5 crores x 1% x 399 per year VIP plan) while advertisements will add INR 2.4 crores (9.5 crores views x 0.25 per ad). And this is only from day one figures. Though Dil Bechara was an outlier, it won’t be wrong to expect more such examples in the times ahead, considering the changes in consumer preferences.
Well, you must be wondering why we are discussing telecom companies along with OTT giants. Consider this: the trio (Jio, Airtel, and Vi) has a subscriber base of over 60 million 4G users, Airtel and Jio combined have 3.5 million broadband users, and all of them have partnered with most of the major OTT platforms for streaming. In essence, they have access to the huge customer base and also provide them the OTT services bundled with the data plans, giving them a quite high bargaining power against the OTT platforms. What’s our point? Jio shook the telecom industry overnight, JioMart overtook the Grofers and BigBasket within months after its launch, and they can do it again in the OTT space. Be it Jio TV, Airtel Xstream, or Vi Movies and TV; if the telecom players decide to come up with their own content, there will be no stopping them!
Such a level of complex involvement of multiple stakeholders having different interests will make the competition more fierce. Whatever happens, we as customers are going to benefit in terms of quality content and competitive prices. So let’s sit back and enjoy this show with popcorns and coke in theatres or your cozy sofa - whatever suits you better.
Our closing question to you would be who will bring India’s 100 Mn subscribers first - Disney+ Hotstar, Netflix, or one of the telecom players waiting to make an entry in the climax?