The Indian digital segment is set for disruption with growth expected to cross 20,000 crore by 2020. An Ernst & Young report highlights the emerging opportunities and challenges for digital and traditional M&E companies in India.
A growing Indian economy, poised to become the fourth largest, coupled with an increasing per capita income, growing middle class and working population, has seen a surge in the domestic demand for leisure and entertainment services. In this backdrop, the media and entertainment (M&E) industry has flourished, with demand for both traditional and digital content.
Surging with more than 800 television channels, 100 million pay-TV households, 70,000 newspapers, and 1000 films produced annually, India's vibrant M&E Industry provides attractive growth opportunities for global corporations. The Indian M&E sector is poised to grow from Rs. 1157 billion in 2015 to Rs. 2260 billion by 2019, at a CAGR of 14.3 percent – a growth rate that is more than thrice as compared to the global M&E industry which is expected to grow at 4.4 percent.
The Indian digital sector is on the cusp of a strong phase of growth. With mobile penetration in excess of 100 percent and traditional Internet and TV subscription services below world average, the Indian digital media market provides a unique opportunity. The sector is poised to witness the entrance of newly acquired Internet users with Internet-using population expected to reach approximately 746 million by 2020 and a large number of consumers expected to get introduced to using digital platforms. Backed by over a decade of macro-economic performance, a strong growth in smart device penetration, broadband penetration, and the uptake of 4G, the digital sector is expected to get a huge boost.
As media consumption over the world evolves inexorably toward digital, M&E companies are increasingly seeking markets that offer the potential for sizable digital earnings. India has a large scale and millennial population – young, tech-savvy consumers with rising earning potential and disposable income. This demography has historically been, and will continue to be, an early adopter of new technology and new models of media consumption.
The opportunity for M&E companies from this new wave of digital growth is large, as is the cost of missing out. Reacting to the pace at which opportunities in these markets present themselves requires agility. M&E companies need to both anticipate the rewards as well as appreciate the risks.
There are a few challenges that need to be overcome to fully gain the benefits of the digital ecosystem in India. India faces inherent challenges around rampant piracy, low broadband spends, high costs of broadband connections vis--vis cable TV costs, and low level of monetization of digital content. Therefore, such issues need to be targeted to fully leverage the opportunity that the digital segments present in India.
Forces of Disruption
India is undergoing disruption on an unprecedented scale with key forces reshaping media consumption in India.
Penetration of smart devices. Increased digital consumption in India is expected to help media conglomerates drive consumer aggregation. Along with increasing connected devices ownership and time spent online, consumers' media consumption habits are also shifting. India has already become the second-largest market for social networking giants.
India has skipped the widespread PC Internet usage phase and has directly come to the mobile phase. The number of smartphones in India grew at a staggering pace during 2016, crossing 300 million and has become the second-largest smartphone market.
Changing demographics. With rapid digitization, the face of Digital India is expected to be far more diverse in the near future. There is a predominant shift toward using the mobile phone as a primary and often only access point to the Internet. The preferred services will match day-to-day demands of a diverse income household, regional language based and more often outside a Tier I city to include Tier II and III cities.
Many content creators are already trying to cater to this changing demography and psychography of the audience and are producing content directed toward a specific target group.
The unprecedented disruption, which India is currently undergoing, has tossed up many opportunities for the companies. Following are the opportunities that exist for digital and traditional M&E companies:
Digital video. The next stage of digital consumption is expected to come from digital media, especially video. Trends in online searches in India suggest that entertainment is becoming the largest sought-after category contributing to 31 percent of all searches. Videos and music currently represent the highest proportion of the consumer preferences within the entertainment category, collectively aggregating over 90 percent.
The video-viewing audience in India is expected to grow significantly in the near future at a CAGR of over 13 percent. With the increasing growth in video audience and consumption, the Indian market provides an opportunity for international studios and content owners to showcase their content and garner additional revenues. By 2020, India is expected to become the second-largest video-viewing audience globally.
Telecom operators, content aggregators, media entities, DTH players, etc., have ventured into the OTT space within the India market. They are leveraging their strengths in order to establish a foothold in the market. Video-on-demand (VOD) services have a higher penetration among the Indian audience.
Snackable content formats. Short-form and snackable content is primarily driving the growth in consumption of digital media, and is primarily driven by a younger audience.
Consumers have shown increased preference toward short-form content, with the average length of video viewed in India being around 20 minutes. In addition, 62 percent of the content consumed on YouTube is short-form content. This trend has led content producers like
Eros International Viacom 18 and Star India to focus on exclusive and snackable content.
OTT and MCN. India has 8 to 10 mainline OTT platforms and over five SVOD platforms like Eros Now, Hotstar, YuppTV, nexGTv, Ditto, etc. Driven by the exponential growth of video consumption over digital media, video OTT platforms have been key focus areas for the leading media conglomerates and start-ups alike. The market is also observing entry of large global digital video players; Netflix entered India in early 2016 while Amazon Prime Video was launched in December 2016. Within this burgeoning market, each of these different players is trying to build a niche with the audience through their individual strengths across content, experience, and eCommerce.
Video OTT forecast. India's online video advertising market will contribute close to 8000 crore out of total digital advertising market of 18,500 crore in revenue by 2020. Advertising video-on-demand (AVOD) services will see a compound CAGR of
38 percent between 2016 and 2021.
Subscription video-on-demand (SVOD) services, albeit starting from a much lower base, will see a higher CAGR at 64 percent for the same period. The market will continue to be heavily advertising with some models emerging around content transactions.
Live OTT is in its early days, garnering a sizeable audience base, led by news, events, and sports. An average of just 30 minutes of live programming per day can add up to 20 percent to a platform's viewership.
Multi-channel network (MCN). While the MCNs have grown rapidly by aggregating viewers in the recent past, their capability to effectively monetize the same has been limited with constraints around content/talent cost and monetization means. The long-term success for MCNs in India would depend on:
- lIP creation, investing, and developing content IPs would be the key for MCNs to drive effective utilization of the content across platforms/media and also enable these players to enhance engagement with the target audience.
- lEnhancing monetization avenues – MCNs need to focus on enhancing monetization through sponsored content tie-ups, content-driven commerce, traditional media tie-ups, merchandising, and other ancillary means.
- lAnalytics and customer targeting/re-targeting capabilities – MCNs need to continue their investments in technology to improve their capability to target/re-target their core audience, analyze real-time uptake of content, track consumption preference, drive content recommendation.
Regional content propositions. The next wave of growth in India's Internet population is expected from Tier II and III cities, where wireless mobile Internet shall play a pivotal role, thus enabling the growth of vernacular and regional content. Currently, 45 percent of the users consume regional language content and this percentage is expected to increase with the growth of Internet users. Digital media players should thus consider aggregating/producing vernacular content to capture the next set of users.
Innovation for Monetization
The disruptors and opportunities present monetization opportunities for M&E companies. Here is how M&E companies can innovate to monetize the opportunities:
Partnerships. The digital market in the future will evolve to have more digital supply chain partnerships to bring in complementary propositions suiting their strengths in the market. With this evolution, international media companies have shown interest in the Indian market through investments and partnerships and are building portfolios to leverage the market strength.
OTT market partnerships. The OTT segment in India currently has companies from across the media ecosystem including broadcasters, studios, DTH operators, telcos, and content aggregators. These companies can be broadly split into: content owners; broadcasters and studios, pipe/payment channel owners; DTH/telcos and start-ups; and content aggregators.
The companies are currently focused on establishing a foothold in the market based on their individual strengths. Content owners, in recent times, have shown increasing interest in this space. Viacom has launched its digital video service, VOOT, in March 2016. Star had launched their OTT service, Hotstar, early in 2015.
Partnerships across the value chain of media services could result in mutually beneficial relationships in bringing down both the content and the transaction costs.
Leverage India for the globe. Users across the globe have an affinity toward Indian content. On one hand there are prospective users from the Indian sub-continent with similarity in languages, traditions, and shared history uptaking the content and on the other, there are users from the Indian diaspora around the world interested in the Indian content offerings. With the ability to pay, shortage of Indian content and good Internet connectivity, these audiences are willing to pay for digital content services.
Indian consumers have over the past several years increased consumption of international content. To make international content available to the audience, entering into the right content deal and planning content window sizing and making content easily accessible to the audience on the digital platforms are some of the critical aspects. Nowadays, broadcaster-centric OTT players in India enter into TV plus digital deals wherein initially the content is made available on TV and then in a couple of days on digital platforms.
Challenges and Mitigating Strategies
Although digital media is on the cusp of growth in India, the ubiquity of media consumption still has some inherent challenges.
Slow Internet speeds. India is plagued with very low Internet speeds, which continue to inch up but are significantly lower than global benchmarks. Internet speeds witnessed a 29 percent y-o-y growth and reached an average of 2 mbps, compared to 10+ mbps in developed countries like US, Canada, and Japan.
Mitigating strategy: All the components of the digital ecosystem would have to work in unison to iron out the challenges of low Internet speeds. Newer compression technologies, innovations like adaptive streaming, etc., need to be developed to mitigate the challenges caused by slow Internet speeds in India.
Low monetization opportunities. The average revenue per user (ARPU) in India is extremely low as compared with other developing countries.
Added to this is the fact that consumers are not willing to spend for digital content. In fact, less than 1 percent of the total Internet users are currently paying for legal content. For investors, this is a huge deterrent.
Mitigating strategy: Subscription packages and average ticket size of transactions have been reduced to lure consumers to pay for sampling the content. Innovative pricing strategies and compelling alternatives have been introduced to convert non-paying users to paid users. In addition, deep discounts, cash-back schemes, and other incentivizing offers are given to acquire new consumers.
Piracy. The industry has not been able to fully monetize the content due to rampant piracy in India. Weak IP regulations and ineffective enforcement has discouraged players to produce original content and IP.
Mitigating strategy: In recent years, the industry has started to adopt cost-effective technologies to curb piracy. In addition, the Indian government's focus on a National IPR policy is expected to create significant new market opportunities for IPR holders.
Online payments. One of the primary forces impeding the growth of subscription and pay-per-view revenue models is the hassles that the consumer faces while making payments on digital platforms, even when they are willing to pay. This is on account of low credit card penetration, fear of using net banking and credit cards online due to security threats, and the lack of experience of transacting online.
Mitigating strategy: Integration with payment gateways, mobile wallets, and other payment mechanisms has reduced the friction faced while making online payments. Some digital platforms are using the billing systems of telecom operators for payment collections.
Digital media companies need to develop a comprehensive framework and an operational ecosystem that manages strategic growth challenges, transforms traditional operations for seamless digital integration, enables investments for scale and growth while handling taxation- and security-related challenges effectively. The future of digital media will have implications for every component of a digital media company.
With the broadband and smart phone penetration to cross 35 percent and 50 percent respectively by 2018-19, Indian digital economy is expected to reach an inflection point as also observed in other developed economies. The growing middle class, rising disposable incomes, high volume of content consumption, and favorable regulatory environment are driving the digital media industry and helping it flourish in India. While the opportunity for M&E companies from digital media consumption is significant, reaping the benefits requires careful planning and execution.