After a blockbuster year, video OTT platforms face multiple headwinds
It is widely known that American internet giants consider India to be a booming user farm for digital products. Their playbook is simple: Earn revenues from Western consumers and get daily active users from India’s rapidly rising internet population. Kunal Shah, the founder of unicorn fintech startup CRED, summed it up best: “When you join the numbers, they look nice.”
But there are always exceptional business outcomes. For instance, India is estimated to have generated 9% of Netflix’s global revenues in Q3 of CY2020. And its subscriber count in the country likely grew more than 200% to reach 4 Mn+ by the end of the year, according to a report by Media Partners Asia.
Netflix was not the only over-the-top (OTT) video platform to register mammoth growth in the year of lockdowns. As people were mandated to stay at home to help contain the pandemic’s spread, their consumption of digital content grew, and so did video OTT subscriptions. According to India Brand Equity Foundation, the sector saw a 30% rise in the number of paid subscribers, from 22.2 Mn to 29 Mn, between March and July of 2020.
But will this momentum continue when things go back to normal? Google’s mobility data showed that people were moving about in mid-March this year, almost as much as they did before the lockdowns last year.
When people go back to their regular lives, they will have to prioritise their spending, and subscriptions could become the first cost to cut, according to Bill Kiriakis, chief revenue officer at app marketing analytics company Adjust. “OTT platforms will have to adjust to this new reality. Consumers are unlikely to continue to subscribe to multiple channels. When the effects of Covid-19 begin to wane, it is likely that ‘subscription fatigue’ will hit at some point,” he adds.
But before we proceed further and discuss such headwinds, here is a quick look at how the video OTT market in India stacks up, according to Statista:
- Revenue in the OTT video segment is projected to reach $3.8 Bn in 2021.
- Revenue is expected to show an annual growth rate of 14.55%, resulting in a projected market volume of $6.6 Bn by 2025.
- User penetration will be 24.7% in 2021 and is expected to hit 31.5% by 2025.
- The largest segment in video OTT is the advertising model, with a market volume of more than $2 Bn in 2021.
The OTT Model Is In A State Of Flux
The OTT spike triggered by Covid-19 lockdowns and the massive growth projections may sound good, but there is one big issue that must be ironed out. Much like elsewhere, video-streaming players in India depend on two major sources of revenue — subscription and advertising.
The concept behind any subscription product is simple. As you add more customers, the ARPU (average revenue per user) is bound to shoot up because the company hardly incurs any additional cost when new users join. But that has not happened for most players. In fact, many of them have been forced to be part of bundled services. Tie-ups with telecom service providers and other digital products help push up the subscriber count but do not generate revenues.
As OTTs went on an overdrive to bundle their offerings with telcos over the past year, their ARPU growth remained flat. And the graphic below shows this inconsistency well.
On the other hand, the high cost of producing original content (one episode may cost up to INR 6 Cr), which is the main attraction for subscribers, means that the money spent there has to be recouped.
According to Raghav Anand, who leads the digital media practice at the consulting firm EY, “The next few years may witness regional/genre-specific propositions and mobile-specific subscription models. OTTs will also try some TVoD (transactional video on demand) models such as pay-per-view. They will also look to monetise through more product placements and brand integrations. What matters most are the two big cost factors — customer acquisition and content costs — comprising more than 90% of the total cost. They will experiment with different models to recoup those costs.”
Given this scenario, Amazon Prime Video is reportedly set to offer an AVoD (advertising video on demand) tier to consumers in India with original content. This will be an addition to its already bundled offerings that come with Amazon Prime.
But transitioning to a part-advertising model is not easy for a premium service. When Netflix tested it in 2018, angry users lashed out, saying that they would unsubscribe from the platform, and the streaming giant had to scrap the plan.
That, however, should not be a problem for platforms offering free content to their viewers. For instance, MX Player, the video OTT platform owned by Times Internet, emerged as the top video-streaming app in India in 2020 in terms of time spent by users (7.8 hours daily).
Gautam Talwar, chief content officer of the platform, says, “Being 100% AVoD, MX offers brands to leverage all our premium content to engage with users, unlike other OTTs with originals behind a paywall. All MX originals have driven advertisers’ interest, and given that, we cater to a large audience base of 200 Mn MAU.”
New Challengers And Challenges Emerge
Jehil Thakkar, a partner at the consulting major Deloitte, thinks that one needs to tread with caution while evaluating the video OTT market. “One common mistake is to think that every player wants to capture the entire audience, which is not true. Premium players like Netflix and Hotstar are targeting, at most, a market of 30 Mn users, while free, ad-based services want to attract the lower end of the economic strata,” he says.
As these ‘desi’ OTT players target users without much spending power, primarily a non-English audience, it will also lead to more vernacular content. According to an Inc42 Plus report, the number of ‘digital mainstream’ users, with an income profile of $4,000-$8,500 per annum and consuming content in regional languages, will rise to 410 Mn by 2030, and this will disproportionately influence the business models in this sector.
As new OTT platforms that cater exclusively to regional audiences are emerging fast, big players find it mandatory to diversify their content in local languages. Industry experts also think that these vernacular players may bring about some fragmentation in the OTT market, similar to what had happened with television.
Still, there is one catch that many seem to be ignoring. The rapid rise of OTT viewing on smartphones was brought about by the price war that came with the launch of Reliance Jio. But the telecom market has changed since and consolidated. With only a few players left, telcos are now moving towards a higher price regime.
“The consumption of video OTT has increased only because of low data prices. While the current prices are unsustainable for telcos, a drastic increase in the rates or a reduction in the daily quota to 100-200 MB for most data plans will significantly affect the viewership,” says Aadeesh Deshpande, assistant vice-president at AltBalaji, the OTT arm of Balaji Telefilms.
Another challenge for OTT players will be navigating the choppy regulatory waters. Ever since the government announced its stringent guidelines for digital media in February this year, the future of OTT platforms has remained uncertain.
To start with, the new guidelines have a three-tier monitoring mechanism to tighten the government’s grip over OTT content. Besides, OTT players have been asked to self-classify their content under five age groups, including ‘U’ (Universal), U/A 7+, U/A 13+, U/A 16+ and A (Adult) content.
The problem goes deeper than age suitability. If we look at some of the most-viewed shows on OTT platforms, we will soon realise that a large chunk of the content is fraught with controversies, and scores of objections have been raised, either by a section of viewers or by government agencies. So, it is not unlikely that OTT shows that hurt political ideologies or social bias will bear the brunt of the new regulations.
The thing about creativity is that it always finds a way to work around power and politics. Moreover, the fact that the authorities are now sitting up and taking notice of OTT content shows that it has succeeded to reach many people and stirred up important topics, too often brushed under the carpet.
But OTTs are businesses at the end of the day and have to make money to stay in business. The year ahead will be a litmus test for the sector: It will show which player can navigate the multiple headwinds and build on the past year’s momentum.
Spotting An Audio OTT Boom
As India braces itself for another spate of pandemic lockdowns and work-from-home mandates, Spotify has announced a slew of original podcasts in the country. Its original content includes the Tamil talk show titled The RJ Balaji Podcast, Hindi comedy podcast Andar Ki Baat by Amit Tandon, psychological horror show Darr Ka Raaz with Dr Phobia and a true-crime series Crime Kahaniyan.
“Over the last year, we have seen an increased shift towards audio across demographics in India. In a video-saturated world, podcasts are a medium that nurtures imagination and can accompany listeners no matter where they are or what they are doing. We are continuing our effort to bring relevant, relatable local content with a focus on storytelling, crime and talk shows with talented creators and hosts,” said the company’s India MD Amarjit Singh Batra.
After completing two years in the Indian market in February this year, the Swedish music-streaming platform said 90% of podcast listeners from India are aged below 35. Also, the number of podcasts created on Anchor, its Indian subsidiary, increased 80x between February 2020 and February 2021. Since 2019, Spotify acquired a host of podcast startups, including Gimlet Media, Parcast, Megaphone, Stitcher and Anchor, to grow its audio library.
The Average Time To Turn Into A Unicorn Reduces By Half
The OTT sector alone has not reaped rich dividends from the rapid digital adoption triggered by the pandemic. The unicorn rush of the past week is another testament to that. Six new startups — fintech firm CRED, social media company ShareChat, wealth management firm Groww, messaging platform Gupshup, social commerce platform Meesho and e-pharmacy company PharmEasy — entered the unicorn club in the past six days, taking the overall number of startups entering the unicorn club in 2021 to nine.
According to an Inc42 Plus analysis, startups set up after 2010 took an average of five years to turn into a unicorn compared to the average 10-year span taken by startups founded in or before 2010.
In fact, the average gestation period for startups turning into unicorns will come down as a given market matures. In the Indian context, this reduction in time can be attributed to typical digital growth indicators such as deeper internet penetration, a rise in digital payments and the proliferation of smart devices.
But as is the case with the OTT sector, the biggest challenge for any digital product is growing the average revenue per user. At a time when the country’s late-stage mega startups are struggling to IPO due to profitability concerns, it will be interesting to see how the new crop of unicorns fares. The world will be watching.
Until next time,