Business Today

OTT: Race For Eyeballs

As digital entertainment platforms in India proliferate, consolidation is on the cards.
twitter-logo Ajita Shashidhar   New Delhi     Print Edition: November 19, 2017
OTT: Race For Eyeballs
Illustration by Raj Verma

Amazon Prime Video India's maiden show Inside Edge, that captures the murky behind-the-scenes happenings of a T20 cricket tournament, debuted to a packed house. Within the first 30 hours, the cricket thriller, produced by Excel Entertainment which is run by celebrity duo Farhan Akhtar and Ritesh Sidhwani, got Amazon Prime as many paid subscribers as it usually would in 30 days. The OTT (over-the-top) digital platform, which has over one million subscribers, is spending a whopping Rs1-2 crore per episode on the web series. Stunned? Such astronomical production costs are becoming commonplace in the digital entertainment business.

The cost of a TV show, that boasts good production value, is in the region of Rs15 - 20 lakh per episode, whereas the cost of production for a show on Amazon Prime Video could be tenfold. Apart from Inside Edge, Amazon Prime India has lined up as many as 18 original shows, all of which will be as grandiose as the first. Besides, the company has signed exclusive deals with a few actors to showcase their new releases days after they hit the theatre - this could cost upwards of Rs80 crore - as also content deals with Mahesh Bhatt's Vishesh Films and Karan Johar's Dharma Productions.

Meanwhile, Netflix, with a paid subscriber base of around 2-3 lakh, has announced a global budget of $6 billion for original and licensed content. A significant amount of this, it is learnt, would be dedicated for content creation in India. "We will reach over 1,000 hours of original content globally this year, which is about 400 original TV series and films, including originals from India. Ultimately, we want to bring a quality curated catalogue that our members in India will love," says the Netflix India spokesperson. Its first Indian original, Sacred Games, produced by Phantom Films, will star actor Saif Ali Khan in the lead. The OTT platform has also signed a deal with actor Shah Rukh Khan's Red Chillies Entertainment. Besides, Netflix has also acquired the rights to air native films such as Brahman Naman, Umrika and Visaranai exclusively on its platform.

Two of the world's biggest OTT platforms splurging billions of dollars to lure Indian audiences with original content is testimony to the fact that it is the best time to be a content maker in India; to tell edgy stories, uninhibited (digital platforms are not bound by censorship rules). What is also evident is that such avant-garde content entails having deep pockets and the ability to invest heavily over an extended period. But is that sustainable?

Ronnie Screwvala, entrepreneur and Founder of UTV (which he sold to The Walt Disney Company), calls it an "absurd" approach. "Spending so much money on content is a scam. I don't know which executive has been authorised to spend so much money. The production quality isn't that great either," he says.

Interestingly, Amazon Prime Video's India head, Nitesh Kripalani, called it quits within seven months of launch. Though the company cited personal reasons for his sudden exit, industry watchers claim he was asked to move on. "Heavy unrealistic investments in stars and page-3 production houses led to enormous costs. The Indian team has also been doing expensive deals through middlemen, which further increased their costs," says the head of a content production company familiar with the incident.

As per a recent report in the Los Angeles Times, Netflix has acquired a debt of $20 billion to fund its content aspirations. This debt, as per the analyst community, could land the company in a financial crisis. The company has been on an aggressive content acquisition spree post its fallout with Disney and Fox Star studios.

Screwvala believes that Netflix and Amazon are making a big mistake by roping in star directors. "It's not going to be that easy. Netflix and Amazon will learn their lesson very early. They have overpaid and the content isn't that sticky," he warns.

 Big Bets

The digital video space has also caught the fancy of television networks such as Star India (Hotstar) and Viacom 18 (Voot); film studios such as Eros International (Eros Now); content companies such as Balaji Telefilms (Alt Balaji) and start-ups such as Arre and YuppTV. India has over 25 OTT platforms today and all of them are making mind-boggling investments to capture the audiences' attention. And for good reason. Roughly 250 million Indians own smartphones, and by 2020, this number is expected to reach 600 million - 85 per cent of whom will have 4G connection on their devices. With most telecom companies offering irresistible data plans, data consumption has increased to as much as 8-9 GB per month, on average, says Vivek Raicha, Executive Director and Head, Investment, Emerald Media. Video content has been the biggest beneficiary of this rise in data consumption. From watching short and snappy videos, consumers are now lapping up full-length video content on their personal devices. "No media company wants to miss this opportunity to build the next generation media conglomerate," says Raicha.

Star India's three-year-old digital platform Hotstar (inching towards the 100 million subscriber mark) has the first mover advantage in the digital content ecosystem. Apart from offering thousands of hours of its own television content, the biggest draw on its platform is live sports. The platform has exclusive digital rights for ICC Cricket, IPL and also tennis and football properties such as Wimbledon and Premier League. The OTT player has inked content deals with HBO, Fox and Disney, as part of which iconic shows as Game of Thrones are on offer. Hotstar also has original shows such as Sarabhai vs Sarabhai and On Air with AIB.

Viacom 18's Voot and Zee Entertainment's Ozee, too, thrive on their TV content libraries, movies, as well as some original content. All these broadcaster-owned platforms, unlike Netflix and Amazon Prime Video, have an advertising-led revenue model - advertisers pay anywhere between Rs400 to Rs800, which is the cost per minute (CPM) for every 1,000 views.

 As recently as a year ago, consumers were paying huge data prices, and a subscription model was unthinkable. So, monetising through advertising became the norm. However, with CPMs as low as Rs400-Rs800, an advertising-led business is viable only if one has volumes of content. These broadcasters, hence, are clearly at an advantage. "Only YouTube, Hotstar and Voot have billions of minutes of watch-time, so, we can at least have a play in this advertising-led business. With half a million users a month or two million users, you may have a good loyal user base, but it's not enough to run an ad business," points out Gaurav Gandhi, COO, Viacom 18 Digital.

With data prices rationalising, Hotstar has launched its subscription service, Hotstar Premium, which hosts live sports and English content at a subscription fee Rs199 for three months. "One part of the open model is to create scale and bring India online through advertising; the second is getting the more affluent and discerning audience who are happy to pay for a differentiated proposition on a service which has Game Of Thrones, Homeland and live cricket," says Ajit Mohan, CEO, Hotstar.

Voot, too, is evaluating the subscription-cum-advertising model, says Gandhi of Viacom 18. "Subscription will enable us to do more original content as people will pay for it," he says.

RONNIE SCREWVALA, Entrepreneur (Photo: Vivan Mehra)

Cost of Originality

 Broadcasters such as Star and Viacom 18, that mostly offer catch-up television on their digital platforms as well as aggregate international content (more so in the case of Star), have been restrained in commissioning original shows. Whereas companies such as Balaji Telefilms (Alt Balaji), TVF Play or Arre , that do not have any legacy content, have little choice but to invest millions on content in order to stay put in the OTT platform space. Eros, with its library of over 5,000 films and the 10,000 films it has aggregated for Eros Now (the OTT platform), does have an advantage over the other non-broadcast platforms. Yet, it has to invest in creating content in order to retain its audiences.

Without abundant content, most of these non-broadcast players are compelled to follow a subscription model. While it is certainly more profitable than an advertising-led model, building a large subscriber base takes time and huge expenses have to be incurred on content and distribution.

The question is whether the homegrown players have the financial wherewithal to sustain. Alt Balaji, for instance, thrives largely on original content. The company entered the market in April 2017 and already has 12 original shows. It will have to create many more in order to get customer stickiness. The content on the platform is priced at Rs100 for three months. To create these shows, the company is spending 2.5-times the money it spends on creating a TV show. Since it needs to present a content portfolio, the company is also outsourcing from other production companies at a cost. Yes, with Reliance picking up a 29.4 per cent stake in the company for Rs413 crore, funding may not be a problem. But why does Balaji, a company whose forte is storytelling, want to be in the platform business?

 Nachiket Pantvaidya, CEO, Alt Balaji, believes the ultimate value lies in owning the consumer and owning the IP of the content. "If you are in the TV business, you can scale your production to a maximum of 10 shows, as those are the slots available. If you are in the platform business, you can scale beyond that. In the first year itself, we are launching 32 shows. The scale of activity is higher if you own the platform." Pantvaidya is confident of closing the first year with two million paid subscribers and getting to the five million mark within four years.

The likes of Arre , YuppTV and TVF Play have huge private equity investments backing them, but will they succeed in getting the new round of funding, especially since the cost of acquiring consumers is prohibitively expensive?

"Investors are cautious," says Neeraj Shrimali, Vice President, Avendus Capital. "For financial investors looking at a five to seven year horizon, it's a very cluttered market. They will not invest unless it's unique."

Raicha of Emerald Media agrees. The reason the investor has chosen to put monies in YuppTV over other platforms is because it is in a less competitive market. "The biggest hook for us was that YuppTV is a streaming player focusing on the diaspora market outside India. It is the largest OTT player in the South Asian video content space; is present in 60 countries and reaches out to 38 million Indians with live and catch-up TV licensed from Star, Colors and Sun. Moreover, it's completely subscription-based," Raicha adds.

 New Avenues

The digital advertising industry is worth Rs10,000 crore. A large part of its goes into search and banner advertising and barely Rs2,000 crore goes into video (of which a big chunk is taken away by Facebook and YouTube). Understandably, brands want to spend on video advertising on platforms that offer them large volumes and large-scale distribution.

Players such as Arre or TVF Play have found a middle path - brand-funded content. "My primary model is B-ward, which is branded content. We have content with 30 brands through B-ward and with 250 brands through A-ward. Of our revenue, 75 per cent comes through brand associations," explains B. Sai Kumar, Co-Founder, Arre . Only 10 per cent of Arre 's revenue comes from advertising, while 15 per cent comes through syndication to platforms.


So, for a show like Ayesha My Virtual Girlfriend, which has finished two seasons, Arre has signed up with Gillette and a host of other brands and woven them into the story. "Brands do tell me that Arre doesn't have the reach of YouTube. Of course, I don't; but my content is available on platforms such as Ola cabs for different audiences. Sponsors are happy," says Kumar, He plans to come up with 12 original shows this year, all of which would be brand-funded.

Kumar believes that the subscription business will take a while to take off, but is not averse to it. "The day subscription opens up, I will be the biggest original content player in the country. That day I will pull the plug and switch to subscription or continue my 70:30 model with the platforms because they are taking my bandwidth cost."

 On the other hand, although platforms such as Eros Now and Alt Balaji are playing the subscription game, they are not reaching the consumer directly. Jyothi Deshpande, MD, Eros International, is of the opinion that the pure B2C model of Netflix and Amazon Prime Video will not work in India. "India is still a pre-paid market; nobody will pay directly for a service that costs Rs100 or Rs600." Eros has tied up with telcos to get services added to consumers' mobile bills. "That's the reason we are acquiring customers rapidly. The platform partner is pushing us as we are powering their video/ movie offering. Had we been completely B2C, getting people to subscribe would have been difficult," she adds.

Deshpande is confident of closing the 2017/18 fiscal with over five million (from the present three million) paid subscribers. She is confident about the future of the subscription model. "Even if a billion people pay Rs5 a month, it will still give us more than what advertising would, because advertising as a percentage of GDP is still very low in India."

While Eros Now may continue to be in the race because it has deep pockets, will the smaller players survive?

Raicha of Emerald Media expects the emergence of a pay TV like model, where there will be aggregators who will combine content of the various smaller platforms. "There is the cost of running a platform, cost of acquiring subscribers, cost of technology and then cost of content - with all these costs when you have to compete with people who are aggressively aggregating, bundling and subsidising content, it becomes challenging."

The OTT business is a tricky game, says Shrimali of Avendus. "Can you be the size of Netflix by just doing ads? No. But till you become a large subscription business you have to monetise through ads. But you can't monetise meaningfully through ads unless you are large."

Screwvala, who had invested in Arre with Kumar, stepped out of the business in less than six months. He felt that the revenue model would not get to profitability at least for the next five to six years. "Then you are back again into creating value and market cap, raising investments and diluting yourself. It wasn't a joyful thing to do it, and to do it in negative funding. It led me to believe that there is no USP for being a pioneer. I didn't feel the need to be this early in the game."

 Content Trap

In a bid to garner more viewers, OTT players are either spending a humungous amount of money on content or resorting to risque content. "The minute digital platforms started emerging, people had misconceptions...that because it's digital, you could do something edgy, throw caution to the winds, put in profanities, show skin and sex. "Players that created such offerings tanked," points out Vikram Malhotra, CEO, Abundantia Entertainment.

He rues that none of the Indian content creators have been able to create even a single digital show as powerful as a House Of Cards or Game of Thrones. "We need our own India version of Narcos or Homeland to make a statement that we have arrived in the digital space."

Ashish Kaul, CEO of Prakash Jha Productions, is of the opinion that most digital content creators are telling stories that are already being told on television. "India has the resources to be the digital content capital of the world as long as platform owners don't look for saas-bahu in a Game of Thrones."

There are more than 25 OTT platforms in India today; more are expected to join the fray in the next few months. As is evident, only those with deep pockets will thrive. As many of them risk succumbing to the exorbitant costs of running the show, a consolidation is inevitable. Five years from now, apart from the global giants Amazon and Netflix, industry watchers foresee only a couple of local OTT players on the scene. Winter is coming.


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