If you walked into the office of the CEO of a broadcast company some 18 months ago, the conversation invariably centred around their forthcoming big-ticket television shows. With the television distribution ecosystem beginning to get digitised and the consumers getting access to better quality television viewing, every broadcaster was more than willing to shell out crores on high-concept shows. The game was to strengthen their offerings of high-definition channels. While Star India didn't get tired of talking about its Rs 100-crore investment on the epic Mahabharata, Sony Pictures was gung-ho about Yudh, which starred Amitabh Bachchan in the lead role.
It's not that digitalentertainment was not in their scheme of things. In fact, Sony had already launched its digital platform, Sony Liv, by then. But digital was a small figment of their large television aspirations. While most broadcasters knew that digital was the future, they felt it was sometime away due to lack of proper broadband infrastructure in the country. In the United States, over 74 per cent of the homes have wired Internet and the minimum access speed is 10 Mbps. Compare that to India, less than a per cent homes have wired broadband with more than two Mbps. Over-the-top (OTT) consumption of content, most felt, was still a far cry.Some 18 months later, broadband still continues to be an issue but the discussion in the boardrooms across all media houses is overwhelmingly digital. Star India rolled out Hotstar, its OTT platform last year. While Sony was the first mover with Sony Liv, all the other broadcast networks would have their own OTT platforms by the first quarter of the next fiscal. Apart from the broadcasters, there are film production companies such as Eros (Eros Now), Yashraj Films and Balaji Telefilms that have also joined the digital bandwagon. The new year saw the foray of the world's largest OTT platform, Netflix, into India. By the end of 2016, at least 10 new OTT platforms are expected to be launched in India, including Arre, which will be launched by serial entrepreneur, Ronnie Screwvala and B. Sai Kumar, Former CEO of Network 18.
Barring Yashraj Films, all the new entrants would be owning OTT platforms, too. Balaji Telefilms, for instance, is launching Balaji Alt, wherein it will not only create content, but will also host content created by other creators. It will also make sure that the Alt platform is distributed through telcos and even DTH operators. Be it Alt or Eros Now, all of them are poised to be the homegrown YouTube or Netflix of India.
The big difference here is that global platforms such as Netflix or Hulu are intrinsically platform owners whose forte is distribution. Content creation came as an after-thought. The likes of Balaji and even Star India are content creators. Do they really understand the game of distribution?
Harit Nagpal, MD, TataSky, says that the Indian media and entertainment industry is becoming greedy. The DTH company, which launched its mobile app a year ago, says that its core strength is distribution and getting the consumer to access the best content and that is what it would stick to. "Earlier I was getting the best content for my consumers on television, now I am ensuring that the content reaches them even when they are on the go, on their smartphones and tablets. I don't understand the business of content creation, and I will not even venture into it. A content creator getting into the distribution business is like me creating content, where I have limited understanding."
While Nagpal may call it greed, with more and more Indians preferring to consume entertainment whenever and wherever they feel like and not be bounded by appointment viewing (which the television industry has offered them for decades), every broadcaster as well as content creator considers it to be the opportune moment to be a part of this digital entertainment boom.
The digital entertainment story is also going the e-commerce way. Every media company is trying to get its pound of digital flesh.
Varied business models
While the broadcasters say that digital was always an area of priority for them, the fact remains that the gradual dip in television viewership was something they couldn't ignore. Many of the high-concept expensive shows such as the mythological and historical dramas did get them critical appreciation, but didn't attract mass eyeballs.Since the trend clearly is to consume content as per one's convenience on a device of one's choice, most broadcasters are currently offering catch-up television on their respective OTT platforms (which enables consumers to watch the TV shows as per their convenience), along with a few original web shows. "Since we have two decades of content with us and a network of 22 TV channels, having our own platform makes sense," explains N.P. Singh, CEO, Sony Pictures Network, which owns Sony Liv. Launched in 2012, Liv is an advertising-supported model. The company, however, is now trying out a subscription model, where a consumer has to pay Rs 150 to access its movie library.
Liv's competitor, Hotstar (Star India) also largely thrives on catch-up TV, and has an advertising-based revenue model. With the cost per thousand minutes (CPM) ad rate being a modest `300-500, the broadcasters are doing bundled ad deals, wherein they bundle their OTT platform along with their channels.
However, neither of the broadcasters intends to be a content aggregator (like Netflix), where it will distribute content that doesn't belong to its network. If one considers Netflix as a benchmark of a classic OTT model, none of the Indian companies would fit the bill.
Not as premium as Netflix, but the likes of Eros and Balaji also have a subscription-based model. Eros Now has also aggregated content from other content providers and invested in creating its own content. But unlike Netflix, it has created a "freemium" model, where only 30 per cent of its content is subscription-based. The company has created two tiers of subscription, a Rs 50 per month offering that is completely ad-free and the second one is at a Rs 100 price point, which has features like HD quality video and accessibility across five-six devices. The company has also partnered with telcos such as Airtel and Idea to distribute its platform.
Balaji Telefilms, which has raised Rs 250 crore to fund its digital aspirations, unlike Netflix, will create 80 per cent of its content and at the same time aggregate and distribute outside content for a fee.
Yashraj Films, on the other hand, does all its digital content on the Y-Films YouTube channel. Being a storyteller all its life, Yashraj, says Ashish Patil, Vice President, Yashraj Films, never wanted to venture into the platform space. "We don't understand that space at all," says Patil.
While most YouTube digital content creators (the likes of Culture Machine and Ping) function on a CPM model, Yashraj does branded content. So, a web series such as Band Baajaa Baaraat or Man's World, which got over a million views per episode is completely funded by Lakme and United Nations, respectively. Similarly, its newest offering, Six-pack Band, is funded by Brooke Bond Red Label tea.While their content is completely funded, they are also looking at monetising through other avenues. He claims that the studio is in talks with a US studio for the TV remake of Man's World. So, remake and licensing rights would be yet another monetising avenue. Patil is also looking at building a franchise. "Band Baaja Baaraat's second season could be a film. You saw a wedding go wrong, now you could now see a honeymoon go wrong, but as a film. So there is scope of building a franchise, too."
While common sense says that the Yashraj model of merely creating content and not owning the platform makes better business sense for a pure-play content company foraying into the digital space, the analyst community wants to play it safe. "The field is wide and open and it's a little too early to say what will work and what will not," remarks Vivek Raicha, Executive Director and Investment Head, Emerald Media.
Subscription v/s Advertising
The market is in the customer-acquisition mode and the tendency is to depend on advertising supported revenue models. Even Viacom 18, which is shortly launching its OTT platform Voot, is looking at a similar model. "Though subscription in the long run makes better business sense, for the next four-five years the larger market would be ad-supported," says Gaurav Gandhi, COO, Viacom 18 Digital Ventures.
With CPMs as low as Rs 300-500, an ad-supported model certainly doesn't make sense. "Anyone who is investing, is investing knowing fully well that the ROI is slim. The game is of stamping your presence and getting consumer loyalty," says Manav Dhanda, Group CEO, Shri Adhikari Brothers.
Not only is India a market where consumers are just about adapting to digital, this is also a market where broadband penetration is far from satisfactory and quite expensive. For consuming one MB of data, one ends up paying Rs 24. So, if one buys a movie, along with the data charges, she will end up paying Rs 200.
In the US, the Internet service providers offer unlimited data bundling services for the entire year. The cable platforms charge $100 a month. In addition, OTT platforms are available on cable at marginal additional costs - Netflix is available at $8 a month, Hulu $7 and Amazon $12. Therefore, even if one subscribes to all these services, she is paying all of $27, which is much cheaper than traditional TV. This has led to people consuming all their content through the various OTT platforms but on their TV sets.Despite the odds in India, Netflix has launched a subscription-based service and that, too, at Rs 500 per month. "When we launch in a new region, we generally see that early adopters of technology and entertainment enthusiasts are among the first to try the service," says a Netflix spokesperson, adding that as the company introduces local content, there will be more takers even at that price.
Netflix's premium pricing may have takers only at the top end of the pyramid, but its subscription service has indeed emboldened those who believe that a subscription model will also work in India. "Indian consumers pay for everything. They have been paying for cable TV since 1992," points out Sameer Nair, Group CEO, Balaji Telefilms.
The competition of OTT is actually with television, says Jyoti Deshpande, CEO, Eros International. "Over 180 million satellite television viewers are paying anywhere between Rs 200 and Rs 450 for their TV connection. So, can you entice 20 million of that 180 million viewers to pay for Rs 100 more for digital content, which they can have on demand?" Deshpande says when they launched Eros Now at Rs 250 per month last year, there were few takers. However, ever since they launched their paid service at Rs 50 and Rs 100 price-points, she claims the subscription has gone up by six times.
Smita Jha, Head, Media and Entertainment Practice, PwC, agrees that there is a market for subscription. She says that there are takers for a premium model like Netflix, too. "Why do you need volumes in every business model," she argues.
Eros Now, for instance, is also looking at coming up with more subscriber-friendly offers such as enabling consumers to subscribe to Eros Now just for a week or even a day. Raicha of Emerald Media thinks that it is a smart move as he feels that advertising in the long run won't work. "Video advertising industry is all of $100 million, of that YouTube takes the lion's share (60 per cent) and then Facebook (20 per cent). The OTT players dependent on advertising will have very little field to play on."
The Indian OTT segment is currently in a trial-and-error mode. There are multiple business and revenue models being experimented and no one has a clue as to what will work and what won't. But two-three years from now, consolidation would surely be on the cards, pretty much the e-commerce way. Apart from the top two players in each segment of e-commerce, the rest are feeling the pinch, and digital entertainment will also go through a similar curve.