The Indian media and entertainment industry has traditionally depended on advertising revenue, but this reliance is slowly giving way to subscription-led models thanks to the rise of digital payments
Video OTT and gaming are the two segments that have been successful in establishing subscription as a revenue model, even as adoption of news subscriptions grew in the Covid-19 lockdown
For a price sensitive market like India, quality of content will be the key success factor in the primary markets, while regional language content will boost subscription revenue from Tier 2 and Tier 3 markets
India's Digital Entertainment Hype
“With the rise of the internet, “attention” became the new currency! Covid19, however, has created a paradigm shift in the way we consume content and the way people socialize online. In this playbook, we delve into the new attention economy – new models, emerging players and trends in the world of social media, news apps, audio and video streaming, online games and more.”
In January 1780, James Augustus Hicky, an Irishman, became the publisher of the first-ever English language newspaper in Asia and India. The Hicky’s Bengal Gazette sold for the then princely sum of Re 1, and it was also the first to carry an ad — a humble alert about the arrival of ships carrying consumer goods and people from England. In fact, later in its short lifespan, due to legal issues and a spat with rival newspapers, the Bengal Gazette changed its name to The Calcutta General Advertiser. Hicky might not have realised it, but the change in name foreshadowed the close ties between advertising and media in India.
The simple truth is that most traditional media businesses such as newspapers, radio stations, TV channels cannot operate without advertisements, because the cost of production is often far higher than what the business would earn from its consumers — the cost of production of a single issue of a newspaper, for example, is approximately 3-4x the retail price of INR5, and that’s only with a large enough print run.
So the ad-supported revenue model has ruled Indian media for over 200 years since Hicky’s Gazette, and even the internet and digital media when they arrived with the likes of Rediff and Indiatimes could not change the ad dependency for decades in India. Indian consumers just did not have the means to pay for digital services and media on a regular basis, until demonetisation thrust digital payments and cashless subscriptions into the limelight in 2016.
With the rise in digital payments, businesses saw the subscription opportunity grow. Today, it has truly arrived and is here to stay. In fact, with the growing list of subscription-based digital media platforms, it may well take over from advertising as the primary source of revenue, say industry experts.
Micro payments through mobile wallets were the first great drivers of subscriptions in India, which is now backed by UPI and other modes. With credit card penetration still low, the digital media players have to innovate with subscription models and tiers to attract their key demographic.
Pandemic Drives Subscription Economy
In contrast, in the United States and other western markets, subscription is the everyday normal, and growing faster than before due to the pandemic. Research agency Zuora’s Covid-19 Subscription Impact Report found that 22.5% of digital media companies are seeing their subscription growth rate accelerate, and more than half of the 700 polled companies reported steady subscriptions. Plus, subscription growth rate in digital news and media grew 3x.
In India, digital media overtook filmed entertainment in 2019 to become the third-largest segment of the media and entertainment sector. Digital subscription revenues almost doubled from 2018 levels, growing 106% to INR 29K Cr in 2019. Digital consumption grew across platforms where video viewers increased by 16%, audio streamers by 33% and news consumers by 22%, says a FICCI report.
Additionally, post Covid-19, digital advertising spends on platforms such as YouTube, Facebook, Disney+ Hotstar and TikTok have fallen sharply, leading to more content platforms looking at subscriptions in the future to buttress any revenue damage. That’s despite higher traffic — companies in banking and finance, retail, durables, automotive and electronics simply didn’t see the need to advertise. according to BARC India and Nielsen report. Facebook and Google, the two platforms that constitute major digital advertising spends of most brands, have also reportedly seen a drop in ad spends in March.
Whether the ad spends for digital media bounces back or not, both global and local trends seem to be gravitating towards subscription as a model, spearheaded by growth in video and music streaming and backed up by the emergence of subscription models in news media. While advertising may not go away any time soon, more companies are surely leveraging the growth potential of the model.
Ad Fatigue Sets In
Besides providing recurring revenue and reducing the dependency on ads, the subscription economy in digital media is driven by the fact that it provides flexibility to the companies and enshrines standardisation of service quality. “It may lower the entry point of access to a product or service and widen the user base while providing recurring revenue,” said Deepak Gupta, founding partner, WEH Ventures. The pricing model is also adaptable and can be tweaked to suit varying market conditions. For instance, the pandemic has brought in various shifts and many companies may have to alter the pricing accordingly.
On the consumer front, there’s definitely an ad fatigue setting in. The increased availability and usage of ad blockers clearly shows the users’ choice.
“We all are surrounded by various kinds of technology at this very moment, we are continuously hogging on to new content. I feel it has become more and more difficult for the advertisers to attract and retain the attention of their target audience, even after using more competitive ways,” Divanshi Gupta, Director, The Marcom Avenue, an integrated marketing and communication agency, told us.
A study by Outbrain in Germany has shown that 33% of German internet users feel disturbed by pop-up video ads within editorial articles, 27% ignore them. The study also shows that over a quarter of respondents are tired of pre-roll video ads on platforms like YouTube. Netflix subscribers saved themselves from 160 hours of ads per year, just by watching the same content on Netflix instead of regular TV, as per a study by Cordcutting.
In this backdrop, the subscription-based model takes companies closer to the customer’s needs. It builds a direct relationship between the publisher and consumer, giving the latter the feeling that they have a say in the company’s long-term success. This relationship translates into personalised communication and benefits.
Subscriptions clearly provide an alternative to the regular media unit economics, which is skewed against the publisher. It allows the publisher or media business to grow its autonomy on the most essential part — the editorial or the content.
“If you don’t rely on ads for your revenue, you don’t have to be a pawn in the attention economy – which means you don’t have to compete with Facebook and Google. If you’re not playing the ads game, you can stop chasing clicks and instead focus on quality,” said Hamish McKenzie, cofounder of Substack. Founded in 2017, Substack allows writers to start a newsletter independently, build their own community and make money from subscriptions. In fact, Substack cultivates its own user base so indie publishers have a ready audience. The San Francisco-based startup takes a 10% cut for the subscription.
The model works as long as the customer sees value in the company’s offering. This puts the company in a situation to focus on quality over quantity.
“We think the dynamics of the attention economy, in which media producers war for consumer attention (often by attempting to elicit or cater to extreme responses), produce conditions that aren’t favorable to trusted storytelling or a common view of the truth. Subscription models better align the incentives between producers and consumers,” Substack’s McKenzie told Inc42.
Besides a large list of international publishers, it also hosts many India-based writers. However, subscriptions are not yet an option for them yet. This is primarily because of the way Substack interacts with Stripe, the gateway used to process payments on the platform and which is still getting established in India.
It’s interesting that payments is a hurdle for Substack in India, because the rise of digital payments is exactly what digital media companies in India have banked on to grow rapidly. It just goes to show that the Indian market needs a cohesive effort to drive the potential of subscriptions.
But credit where its due — micro payments have enabled the success of video and music OTT platforms and brought much more international content to India than before. Managing subscriptions and recurring payments have also become easier and the quality of content has instilled further confidence in digital platforms among consumers.
The Many Arms Of India’s Subscription Economy
“The general perception is that customers are used to consuming content amortised by the brands but at the same time there is a surge for on demand and customised content. The OTT platforms are a glaring example of that,” Sandeep Singh, president and cofounder, Khabri.
India is usually analysed in three segments. Urban or ‘first-world’ India, the middle-class layer and the so-called bottom-of-the-pyramid or Bharat. The first one is a must-win market for all the video and audio OTT players and they have made significant market-building investments in the metros through content and marketing. The other two layers are the ones where regional language content will be a key success factor, according to many experts. In fact, even international platforms in India are starting to realise this increasingly and have invested heavily in this direction.
“This has yielded results already and the “first-world” India is already a user of subscription. The middle-class India is starting to test subscriptions and Covid-led lockdown is helping build adoption in this segment. One can foresee households in this India to subscribe to at least 1 entertainment platform in the near future. It’s very unlikely that bottom-of-pyramid India would be a consistent user of subscription services,” said Bertelsmann India Investments’ principal Pranjal Kumar.
Analysing the market, it’s clear that gaming and video OTT have been the early adopters of the subscription models in India, followed by news and audio OTT platforms. Social media, however, may not be easy to monetise due to its less unique content, with dating platforms being an exception.
Originals & Exclusives Bring In The Moolah
The key success drivers for subscription video-on-demand are exclusive content, originals and wide variety of content. And thus globally, video and audio OTT have already jumped on to the subscription bandwagon. “Additionally, gaming i.e. streaming of live games, along with the wrapper of league and club-based fan building is an interesting area and we could see some examples of subscription there,” said Bertelsmann’s Kumar.
By 2020, the OTT subscription market will approximate 10% of the total TV subscription market (without, however, considering data charges).
For India’s major video OTT players, that offer both freemium and full-fledged subscription model, three to four factors have contributed to the uptick in subscription as a revenue model, Ali Hussein, the CEO of Eros Now says.
He believes premium content has a significant amount of repeat values. “People like to watch films, you know, everybody’s got a set of favorites that they want again and again. So that essentially is created for a nominal price. You not only get new content, you’ll also get old legacy content and be able to subscribe to a service,” he said.
Besides a premium-ness in the content, another factor is the independence that video streaming platforms offer to shine light on new areas of the larger Indian society, tell stories that have not been told before and also explore more themes for matured audiences than traditional television.
Microtransactions Drive Gaming Revenue
“As a model, the microtransaction ecosystem is well-entrenched in the gaming industry. Competitiveness, multiplayer element, multiple levels — there are a lot of ways to build stickiness and addiction. And that’s what gaming companies try to fill. Thus, there is a lot of scope to ask for money from players,” said Rajeev Suri, managing partner, Orios Venture Partners.
Online gaming has retained its position as the fastest growing segment on the back of transaction-based games mainly fantasy sports, increased in-app purchases and a 31% growth in the number of online gamers to reach around 365 Mn in 2019.
“In the current environment, sustained user engagement over a longer period of time is likely to result in habit formation for the future. This is likely to result in an increase in the gaming pie with ad models continuing to enjoy uptake amongst majority. However, paid models are likely to benefit in the medium to long run as more users start to pay for games they are hooked to,” Girish Menon, partner and head, media and entertainment, KPMG in India, told Inc42.
Podcasts Rise With Subscriptions
When it comes to monetisation, most of the music streaming industry players, both local and international players, have focused on both ad and subscription models including Spotify, Amazon Music, Apple, Gaana, JioSaavn, Hungama, Airtel Wynk Music and others. The reason being availability of unlimited free content with ads including FM radio, which is also essentially a free service supported by ads. Podcast, an upcoming category within audio streaming, has also taken to subscriptions even in the nascent stage.
“Indians are used to having ads run alongside music, however given a choice, they wouldn’t want that. Pricing is the key here. When it comes to audio OTT, Indians are ready to pay for an ad-free experience but not too much also. So, pricing is the key,” said Rajeev Suri, Managing Partner, Orios Venture Partners.
Indians are still coming to terms with paying for content and audio content is lower on their priority list than video. In that respect, the podcasts industry still has a long way to go.
“It’s more about creating adoption right now. Build habits and then introduce the payment modules. It’s more about people getting comfortable in paying for online content whether audio or video, will not matter, that’s a behavioral shift anyways happening,” said Pulkit Sharma, cofounder, Khabri, told Inc42 earlier.
Is Subscription-Based Indian Social Networking Viable?
While within the media and entertainment sector, subscriptions have come to nearly every segment, social media is largely untouched by subscriptions. Globally, the likes of Vero, fitness app Strava and MeWe among others have tried to change this to varying degrees of success, but nothing which can be called game-changing.
The fact that high-quality originals and exclusives are driving engagement among OTT video and podcasts platforms, it is difficult for user-generated content or UGC to deliver the same experience. On the other hand, the revenue model for social media is more heavily skewed towards ads than in digital video or news. And perhaps the fact that social media platforms need a huge user base to be considered a success, the entry barrier that subscription raises is not viable at scale.
Subscriptions Are In The News
The digital news business in India has multiple revenue streams including advertising, content marketing and subscriptions model. Some platforms such as Scroll, The Wire and The Quint invite readers to support them by making monetary contributions. But how much reading can an average consumer get done in a day?
Large media organisations such as Times of India, The Indian Express, The Hindu and The Hindustan Times have also invested a lot in their digital operations and usually dominate search results, so the competition in the digital realm is ultra fierce.
In the last few years, many legacy organisations have put a certain percentage of their content behind a paywall. However, according to a FICCI-EY 2019 report, less than 0.25% of total online news consumers were paid subscribers in 2018, and a viable subscription model will require at least 10-20% of the current subscribers to turn pay.
“News sites haven’t really tried to convince people to pay, most of the big ones are free. Some are paid, some depend on donations and they continue to survive. That is one part. The other is the fact that we are a very overserved news market, so there is so much (mediocre) free news available that most people don’t want to pay,” said Vanita Kohli-Khandekar, a columnist for Business Standard and a media and entertainment expert.
But that may be changing gradually. Many more are now willing to pay either subscription or donations to sites that offer authentic news. “Both pricing and good content are important determining factors. Without good work you can’t price well and vice versa. Without money you cannot create good stories or content,” she added.
But new-age media platforms have garnered success. The Ken, for instance, is subscriber-only publication that covers technology, policy and business. It has more than 15K subscribers. Newslaundry, which offers some of its content only for subscribers, attracts 70% of its revenue from subscriptions. It also plans to have subscription as the primary revenue stream in the long run, followed by offline events and news partnerships.
With pandemic moving more audience towards digital news platforms, the investment is expected to be even higher. And, India may see a similar trend as the US media where New York Times and Wall Street Journal have successfully captured hundreds of thousands of paid subscribers on digital. The coronavirus coverage also drew nearly 600K digital subscribers to the NYT during the first three months of 2020, despite Covid-related content being free on NYT.
“In international markets, where most publishers are behind the paywall, search engines have changed their strategy and now do not penalise that content. In India, once reputed publishers start building paywalls, the SEO impact will be nullified for everyone,” Pradeep Gairola, VP & business head, digital, The Hindu said in a blogpost.
Some of the biggest global successes such as the New York Times, Economist, Financial Times are built on a freemium model. “And these hire top notch reporters and writers and pay them well. But note that almost all of them have a trust element. FT is owned by Nikkei which is owned by a trust, Ditto for The Economist a large part of which is owned by a trust. Ditto for NYT. I think ownership and the structure built around ownership and revenue is the most critical element in determining a news site’s ability to invest in content and demand to be paid for it,” Kohli-Khandekar added .
Will Subscription Fatigue Set In?
While many young urban Indians are definitely cutting the DTH cord for video entertainment, DTH and OTT have to coexist to tap into the market outside ‘first-world’ India. But at some point consumers might ask themselves how many subscriptions are too many?
“Within video OTT, we see a transition happening from DTH and cable towards OTT. We are not sure if users will pay for both — DTH/cable bill and OTT subscription simultaneously. If a user is paying for both then they will be resistant towards adding a lot of OTT subscriptions or paying for many services,” said Jigar Doshi, cofounder at Flixjini, which acts like an aggregator and discovery point for OTT content.
The burden of multiple subscriptions in India has led to a trend towards service providers like Airtel, Jio, Tata Sky, Vodafone consolidating some streaming services together under their umbrella. Amazon does the same in the US under Amazon Channels. Classically DTH providers have been doing the same in their plans where there is common billing, but we get to choose the channels. “We see a similar trend playing out among smaller players who produce original content like Eros Now, ALT Balaji where their content is available through Airtel XStream,” Doshi added.
Video streaming has already taken the leap with subscriptions. The future, however, is about collaborations and bundling. “We are likely to see news publications, video and music streaming platforms, gaming platforms etc. coming together to offer easy access to multiple services through a single subscription,” Siddhartha Roy, COO, Hungama Digital Media.
The new-age companies are mainly valued on the LTV (lifetime value) of a customer or a typical user. A subscription service will definitely yield a much higher LTV compared to a third-party or brand paying for the same content, say experts. However, content is king in this space, so users will only subscribe to compelling offerings — and content might even break through the price sensitivity.
“The content/service has to really be worthy of pricking a user’s wallet. There are several used cases of subscription in content genres like astrology, guided meditation, music etc. The key here is to identify that need and customise accordingly,” audio news platform Khabri’s founder Singh added.
Habit formation also plays an important role in the shift towards subscription. Orios’ Suri shares the example of India’s cab aggregators to explain it better. These platforms were cheaper than auto when they started off and then slowly became costlier. However, customers still continued to travel in cabs. “This is because they have understood what these cabs offer. They may not be as cheap as they were in the beginning. But customers are used to the new way of travelling.”
With Covid-19 bringing down ad spending by brands, content providers, media companies and entertainment platforms all need to focus on maximising subscriptions. The first agenda for the battle will be price and this could lead to mass adoption as seen in the case of telecom services.
Most analysts and media founders felt that Covid-19 will not change the market direction, in that this was always going to be the logical conclusion. But the trajectory has shifted and the curve is now climbing fast. Despite free consumption rising and discretionary spends going down, subscription is expected to see more takers and it will be interesting to see how the boom sustains itself in the long run — will Indians continue to add to their subscription baskets or will the hunt for quality bring the subscription players to a point of consolidation?