In the power play of OTT platforms, will the Advertising Video-on-Demand (AVOD), Subscription Video-on-Demand (SVOD) or Freemium model win? Will competitive pricing and content have Indian consumers take the subscription route or will AVOD continue to dominate the industry.
By Simran Sabherwal and Allan Dsouza
It may be early days for India’s OTT industry, but the emerging cord-cutters have already started throwing in their best draws to carve out a space for themselves. The Over-the-top or OTT space, with more than 30 players in the arena, is primarily modelled on Advertising Video-on-Demand (AVOD) or Freemium (paywall for selective content) with Subscription Video-on-Demand (SVOD) catching on. What will be interesting to watch in the days ahead is whether content backed by affordable pricing is the way forward or will freemium/AVOD model continue to dominate the space. As it stands today, OTT is a category driven by the advertising-led revenue model (90%) while subscription-led contributes a meagre 2-3%.
THE PLAYERS AND OFFERINGS
On a train or at the airport, at a mall or in offices and homes – wherever you go nowadays, chances are that you will find someone or the other engrossed in their phones. A closer look will perhaps reveal that they are not messaging or checking mails, but watching video content on their phones. While everyone would have worried about data charges before watching videos until recently, falling data prices thanks to advent of Reliance Jio, cheaper smartphones, increased Internet penetration and consumption of content across multiple devices has seen a huge uptick in the usage of video streaming apps and led to the growth of OTT players in the industry. Hotstar, being among the early entrants in OTT with the backing of a broadcast behemoth like Star India, managed to test the waters and despite suffering early losses reportedly to the tune of over Rs 400 crore in 2016, has managed to come out as the favourite child of advertisers with its vast offerings that cover catch-up TV, Live Sports, Originals, Syndicated International Shows, Movies and Regional Shows. Following suit are other broadcast-led platforms such as Voot from Viacom18, SonyLIV from Sony Pictures Networks (SPN) and OZEE from ZEE Entertainment Enterprise Limited (ZEEL) that are either completely advertising-driven or have a small subscription-led option for discerning audiences that are willing to pay for additional services.
On the end of the OTT horizon are complete subscription-led platforms such as Netflix, Amazon Prime Video and home-grown OTT venture, ALTBalaji that believe exclusive content is the game-changer and that users will pay for content in the long term. But how much will the Indian consumer pay? Netflix’s starting price of Rs 500 per month clearly sets itself apart as the most expensive streaming service in the country; Amazon’s Prime Video has an agenda to hit as many users as possible to subscribe to ‘Prime’ service that also integrates its primary e-commerce business, and hence has priced itself competitively at Rs 499 for the year. Hotstar’s premium service is priced at Rs 199 a month. ALTBalaji is banking on its content and subscription price-point of Rs 100 for three months, Rs 180 for six months and Rs 300 annually to be the disruptor in the category.
It recognizes the void for quality Hindi content and is trying to create a space for itself in the Indian mass audience that fits between the ‘Narcos’ to ‘Naagin’ by creating content that can hook audiences. It is offering the first five episodes of every show free to the user.
AVOD OR FREEMIUM: THE REVENUE GENERATOR
With the major broadcasters having a presence in the space, the alliance with the mother brand provides the OTT platform with a large library of content. Says Ajit Mohan, CEO of Hotstar, “Consumers already have affinity to the stories on Hotstar and we have made the choice saying there is an opportunity to create a much more differentiated proposition with premium and add more value to the discerning viewer.”
On the other hand, Voot follows a purely AVOD model and Gaurav Gandhi, COO, Viacom18 Digital Ventures says, “We need to first build a brand, demonstrate to the viewer what you are capable of and then monetize the platform.” He believes that Voot provides an opportunity to own and understand the consumer better as the insights gleamed are invaluable and adds that for Voot, advertising is a large opportunity before the service takes the subscription route. Moving on, ZEEL is the only broadcaster that operates two platforms – Ozee, an AVOD model and ditto TV, a SVOD model - that play catch-up content from various broadcasters at a price point of Rs 20.
Meanwhile, Ravi K. Shharma, Senior Vice President and India Head, Brand Solutions of music streaming platform Saavn says that with 30 original shows, Saavn has established a formidable original content library spanning diverse genres and this has helped grow revenues. He says, “We have seen a dramatic growth in streams on our original content and this has definitely given a fillip to our ad revenues. We see this trend continuing in the future and as and when we add more shows, ad revenue contribution on content will also proportionately grow.”
SUBSCRIPTION IS WHAT IS NEEDED
Speaking at an event recently, Dr Subhash Chandra, Chairman, Essel Group and Rajya Sabha MP, alarmed the OTT industry by saying that the advertisers alone won’t be able to pull it off. “Without paid content, quality cannot be maintained. Advertisers, today, are not ready to pay alone. Without monetization, OTT can work only for a short period,” Dr Chandra said, voicing the concerns of an industry that is still nascent.
Though Hotstar is probably the biggest player in the segment, recently crossing 200 million downloads, and follows the Freemium model, it is still far from making profits. According to media reports the parent company of Hotstar, Novi Digital Entertainment, posted a net loss of Rs 409 crore for the financial year 2015-16 (FY16) and overall revenues amounted to Rs 185.7 crore. Subscription revenues were Rs 24.1 crore and advertising revenues was Rs 128.5 crore with the company investing about Rs 154 crore for advertising and marketing. However, these numbers should be seen as an investment period for the entire category. At the moment, the OTT companies face monetization challenges as advertisement revenues do not cover content and customer acquisition costs. In the long term, these players will have to garner significant revenues from the subscription services.
On its part, Hotstar has “tremendous commitment of growing subscription”. On being asked if Hotstar is an expensive proposition, compared to other players, Ajit Mohan says, “We feel comfortable about the Rs 199 price point. Many platforms don’t have much content, others have very niche offering. Hotstar Premium combines three big verticals - Best of American TV shows and movies, live sports including Cricket, Premiere League, Tennis and all, and the local TV shows ahead of broadcast on television. That proposition is unique, it is not comparable and the price point is a tremendous value for users for that property.”
SVOD: A RISKY BET?
Standing apart from AVOD players are ALTBalaji and global biggies Amazon Prime and Netflix who are betting big on the rationale that Indians will pay for quality content. With the agenda being on habituated viewership, Amazon Prime and Netflix offer one month free trial and ALTBalaji lets viewers sample the first five episodes free before the pay-wall sets in. With a proposition of “original and exclusive”, ALTBalaji says that it will have over 200 hours of content on its platform by end of Year One. Says Nachiket Pantvaidya, CEO of ALT Digital Media Entertainment, “We are the pioneers of Original Content in India and we are number one in putting out original and exclusive content in terms of volume.”
ALTBalaji is not looking at any advertising currently – even in the form of brand integrations (though it could be a possibility in the future). If things go as per plans, ALTbalaji aims to break even within two to three years and contribute at least a third of Balaji Telefilms’s revenues. The target for ALTBalaji is anywhere between 1.5 million-2 million subscribers by March 2018.
The other player in this space is Amazon Prime – a paid multi-benefit subscription service from Amazon.com – offers consumers not just content but expedited shipping for all products bought on the parent platform. Amazon Prime’s focus is on solving customer pain points. Says Nitesh Kripalani, Director and Country Head, Amazon Prime Video India, “We are focusing on the basics. If we continue giving the best content in the language that you want, and it doesn’t kill your total cost of ownership of that particular service, customers are going to be loyal. Looking at pricing is a very short term measure, we think long term.”
The third player, Netflix, is banking on its globally acclaimed original series, films and documentaries along with local home-grown content to catch Indian eyeballs.
While ALTBalaji, Ditto TV & Amazon Prime are seen to be competitively priced, the price point of the other players raises a debate on whether premium means expensive. Rajiv Dubey, Head – Media, Dabur India says, “The pricing has to be right and appeal to people because people are very price-sensitive. We may keep calling it premium, but just by calling it premium content you cannot make a lot of money in this country, you will have to go to the masses to make money.”
CONTENT: THE GAME-CHANGER
Currently, the content can be broadly classified as catch-up TV (including syndicated content), live sports and originals. Looking at it from the pricing point of view, live sports draws a premium followed by originals and then catch-up TV. Explains Uday Sodhi, EVP and Business Head – Digital, Sony Pictures Networks India which runs Sony LIV (which follows the Freemium model), “Sports is premium. Original content can be tailored for advertisers so the pricing is different. Catch-up content is more volume led. Ultimately, pricing is driven by demand-supply.”
The News genre is another content category that OTT platforms are looking at eagerly, and Hotstar’s recent partnership with Arnab Goswami’s Republic TV makes it evident that news has great potential on OTT. In a press statement, Arnab Goswami, Editor-in-Chief and Founder, Republic TV, says, “Hotstar is a compelling destination for content cutting across genres and age groups. We are confident of breaking the digital barrier and believe this is the first step as news produced in India goes digital and then global.”
For OTT players, with increasing competition and new entrants in the market, the focus is shifting towards content differentiation. Hotstar’s wide array of sporting properties, including IPL and Voot’s strong kids library are big differentiators for these platforms.
In an effort to stand out in the clutter, players – particularly SVOD - have signed deals with top notch film-makers to produce originals in an effort to get the quality right and get consumers to loosen their purse strings. Says Kripalani, “A digital video service is all about content, if you don’t get the content right, you are going to miss out.”
What also helps is the loyalty of the consumer who regularly returns to the platform for their content dose. Says Sodhi, “Retention is easy on the OTT platform which is why advertisers prefer it. Film-based platforms have a retention issue but on show based platforms, it is not an issue which is why VOD platforms go for original shows because that brings back the audiences, that loyalty factor.”
Getting the content mix right will also evince advertiser interest. As per Sujata Dwibedy, ?Executive Vice President - Carat India, “If you get your content and integration right, the client will be interested. For example, look at the Sarabhai Vs Sarabhai:Take 2 (to be aired on Hotstar), so many advertisers are so keen to go into it.”
Agrees Dabur’s Dubey: “Live sports is a huge attraction. As far as catch-up TV is concerned the options are too many right now but if you have an original series which is meant only for that platform, that has a huge potential. If there is a premium content, you need to ensure it’s not available anywhere else that’s why sports works better as it gets a lot of traction particularly from people on the move.”
LOOKING AHEAD
All the three different formats – AVOD, SVOD and Freemium - will continue to exist and the way forward could be just to choose the content on offer and the model and use that strategy to get the customer. However, AVOD offerings are expected to be a significant contributor of OTT revenues in the near future as the SVOD offerings would take time to mature and grow its market from its current small base. What also needs to be kept in mind is that currently only 0.5 million to 1 million pay for content out of 100 million digital users. And video consumption would contribute to more than 60% of traffic going forward. With such heavy consumption, the market is expected to consolidate among three to four major OTT players who would have picked up specific market niche/ differentiation around major content genres - sports, kids, movies, young adult, etc.
It will also be interesting to see how digital plays with TV but what’s clear is that all players are looking at subscription to drive growth. Says Gandhi, “In this country digital and TV are going to work hand in hand on the advertising and subscription side. The only thing we want to work towards is faster monetization.”
Commenting on the growth of the platform, Raghav Anand, Director, Media & Entertainment, EY says “OTT proliferation on the consumer end depends on cost of access (bandwidth costs), ease of payment (wallet, UPI penetration) and mode of availability (time window, personalization, format, platforms, language, etc.). These factors were traditionally unfavourable leading to high volume growth but low monetization at the business end. Hence, cost of acquisition plus content costs were not commensurate to revenue earned. Smart partnerships to reduce CAC and IP/ revenue sharing are imperative for growth.” He adds, “Most of these players are betting on the fact that as the market matures, the consumers would start paying for content. Also, the expectation is content differentiation/ uniqueness would drive consumers to pay. With the digital payment ecosystem maturing and bandwidth availability, there are pockets among different digital consumers who have slowly started to pay. However, the inflection point on subscription is a good three to four years away.”
@ FEEDBACK simran.sabherwal@exchange4media.com
