Part 2 (continued from April 2017 edition of Broadcast & CableSat) With OTT platforms continuing to see major traction, digital video-on-demand and television could see harmonious co-existence in the near future, feeding off each others strengths.
The future of M&E industry revolves around digital. The mobile phone, which today reaches every nook and corner of the country, manifests itself as a powerful medium to bridge the content consumption divide across socioeconomic classes and categories. With the continued push by the government around digital consumption and payments, mass adoption of technology is a foregone conclusion. However, this brings with itself challenges for every sub-segment of M&E industry to innovate, to align with this change, and evolve in terms of building sustainable business models. w
While the digital customer is evolving, the digital ecosystem is also evolving at a faster pace, opening up newer avenues for users to consume data. The consumer is becoming more digitally savvy, looking at a personalized rich experience while consuming content; they want to engage in simple ways. The digital infrastructure is also developing with the government's continued push to increase data bandwidth, reduce data costs, and increase availability and accessibility of smartphones.
Brands gradually understanding the needs of the digital consumer are accordingly trying to device innovative ways to communicate with him. India remains an ad-driven market and brands continue to find it challenging to coax customers into paying for data and content. Digital has also positively impacted the relatively smaller sub-segments, such as gaming and music – which too registered impressive growth. With OTT platforms continuing to see major traction, digital video-on-demand (VOD) and television could see harmonious co-existence in the near future, feeding off each other's strengths. The four key pillars that continue to influence the digital media and entertainment (M&E) space are infrastructure, mobility, government policy, and digital technologies.
The number of wireless users in India is likely to reach 969 million in 2021, and the 4G connections are expected to grow five-fold from 2016 to 2021 at a compound annual growth rate (CAGR) of 38 percent and 3G connections are expected to surpass 2G connections by 2019.
Further, 3G and 4G connections are expected to represent 80 percent of overall connections by 2021 from 25 percent in 2016. With improved network and better access to Internet and smart mobile devices, digital platforms are expected to drive more media consumption. In India, the average mobile-connected end-user devices generated about 251 MB (megabytes) of mobile data traffic per month in 2016 compared to 151 MB per month in 2015 and in 2016; India's business mobile data traffic grew 1.7 times. This is a crucial development for the M&E space, whereby more accessibility is given to the user to interact on digital platforms, consume digital content, and buy digital goods.
The number of Internet-enabled mobile phones crossed 300 million in 2016 and is expected to touch 700 million in 2021. Mobile devices penetration in India is growing steadily and mobile remains the primary device for Indians for their digital needs. With increasing accessibility and affordability of smartphones, users are increasingly consuming content through their phones.
A digital customer's appetite for rich content, especially video, continues to grow on the go that requires higher bandwidth. Given this, the rate of growth of 4G networks will be multifold in comparison to the growth in wired connections and Wi-Fi access. The mobile video traffic is expected to grow 11.5 times during 2016 to 2021 at a CAGR of 63 percent and the number of video capable devices and connections is expected to grow 2.2 times between 2016 and 2021, crossing 800 million in number.
Video is expected to represent 60 percent of the overall mobile data traffic and is expected to grow to 78 percent by 2021. Data rates have also dropped drastically across the board with the launch of Reliance Jio. This may further give an impetus to users to be online and interact on digital platforms.
The Government of India through its umbrella Digital India initiative continues to invest and drive several digital initiatives to improve the digital infrastructure and digital ecosystem of the country.
Connecting the unconnected. About 112,871 km of optical fiber cable has already been laid under BharatNet for high connectivity. Mumbai is expected to get 1200 Wi-Fi hotspots for free usage and Google is working with Railtel to provide free Wi-Fi at over 400 railway stations in the next few years. The government's initiative to connect the remote parts of the country has boarded 8621 villages already and plans to onboard over 55,000 villages by 2019.
Impetus to the telecom sector. The transformation of Department of Telecommunication (DoT) into Center of Probity and Transparency has led to streamlining of outstanding spectrum policy issues, allowing availability of more bandwidth for operators in auctions that can be deployed to drive data growth. After considering the recommendations of Telecom Regulatory Authority of India (TRAI), the government has decided to grant unified licenses for virtual network operators, who can offer consumers more choice for data and voice services while allowing telcos more options to monetize unused airwaves.
Technology has made it possible to merge the real and the digital worlds, which is creating new immersive experiences for the users. Digital technologies, such as augmented reality (AR)/virtual reality (VR)/mixed reality (MR), are already being actualized through various applications. However, there are some content experiences that are gaining traction:
Live video streaming. In India, the number of video-capable devices and connections is expected to grow 2.2-fold between 2016 and 2021, reaching 800 million in number. Live video streaming continues to gain traction as an experience and not merely for sports. Currently, the numbers of OTT players in India have increased significantly, reaching about 30 with the likes of Hotstar, Spuul, Voot, Netflix, and Amazon Prime.
IoT. The Internet of Things (IoT) is a concept whereby multiple devices, such as sensors and electronics, can be connected via the Internet to collect and exchange data. The M&E sector industry is already using various categories of sensors such as inertial, motion, and image that are used in animation, gaming, video images, camera stabilization, sports, and 3-D to understand consumer preferences. This is further analyzed to generate experiences for the end customer. The penetration of IoT in India is still in the nascent stage; however, with the increase of wearables and smart devices, usage information can be collected and used by brands to provide further personalized services to the end user.
Real-time 360-degree viewing. With advancements in VR headsets, real-time 360-degree viewing could be possible, which is currently only available on a pre-recorded basis. This will mean individuals can attend a live event without leaving their homes, creating new revenue streams for the stadiums.
Cognitive – The Next Evolution of Data Technology
Customer journeys are getting increasingly complex in a multichannel and multi-devices ecosystem, creating unstructured data that is difficult to analyze. Cognitive technologies deliver on this issue to give structured, correlated, and unique insights that can range from emotions to attitudes. Cognitive technologies such as artificial intelligence (AI), machine learning, and natural language processing (NLP), are disrupting the media and entertainment space. Applications such as Banjo claim to be generating insights using AI by mining social media, search trends, geo-location data, and other digital signals to produce breaking news instead of humans waiting to discover something important.
The development in these cognitive technologies can help in higher customer engagements through better content targeting and better monetization through higher consumer stickiness.
Over-the-Top (OTT) Video Services
The burgeoning mobile Internet and smartphone penetration has given rise to an alternative screen for media consumption in a country whose households are still largely single-TV. The smartphone growth in India has ensured that Internet consumption via mobile data constitutes 15 percent of all Internet consumption in 2016, which is projected to rise to 30 percent by 2021.
Urban consumers have been early adopters of video, especially in the age group 15–34, which constitutes 70–75 percent of the total Internet base. With on demand accessibility, aggressively priced high-speed 4G data services, and a latent demand for differentiated content, OTT VOD services have seen an upsurge in the last one year.
The year saw the entry of global OTT video majors, Netflix and Amazon Prime, in India as well as launch of major broadcast network-backed platforms like VOOT and OZee. Other platforms like Hotstar and Sony Liv consolidated their offerings by launching premium services and a dedicated kids' channel, respectively. Telecom platforms are also joining in the OTT game with syndicated content offerings on the likes of Jio Apps, Airtel Wynk, and likewise. Monetization models in the OTT space remain at a nascent stage and differentiation remains a challenge.
OTT Video Value Chain
A typical OTT video value chain comprises of four layers of stakeholders – the content creators; intermediaries like multi-channel networks (MCNs) which act as aggregators between the content and the platform; digital video platforms; and the infrastructure providers who take the content to the end users. Of late, the boundaries between different layers of an OTT video value chain are blurring as players look to build integrated capabilities.
The early wave of VOD content was dominated by music and movie trailers. 2016 saw continuation of the trend with catch-up TV, movies, and the dominant categories with some traction toward live sports. Existing content forms the core strategy of broadcaster platforms, although some are trying to weave original content around catch-up TV to offer enhanced value to consumers. Original for-digital content is still at a nascent stage, with a few platforms beginning to invest in the same. Originals in the form of comedy, through the use of parodies and fiction videos/web series, romantic comedy and drama, and thrillers are gaining traction. On the other hand, global VOD majors are offering a mix of syndicated international and Indian movies and shows, as well as originals by investing in local productions and tying up with reputed media houses.
With an increasing availability of high-speed Internet and a maturing device ecosystem, OTT video consumption is likely to gain acceptance across broader demographics as compared to the targeted audience profile currently. By 2021, video-capable devices will constitute 59 percent of total mobile-connected devices with 814 million consumers, from 35 percent currently. The same would necessitate a shift in content strategies with current consumption patterns – short-form content on mobile phones are likely to expand to consumer comfort with streaming long-form content, across various devices including smart televisions.
Regional markets that have a limited digital presence currently are also expected to evolve with mass adoption of data. Regional OTT consumption too has seen a growth of 75 percent in Tamil and Telugu content.
OTT Business Models
The business models around OTT platforms are currently in an evolutionary phase, with players gauging consumer habits to find the right mix between AVOD and SVOD-led offerings. Leading OTT video platforms like Hotstar and VOOT are dependent largely on advertising revenues, with the likes of Hotstar having a small portion as subscription income. Out of a total revenue of 1.86 billion in FY2016, Hotstar's advertising revenues contributed 1.39 billion, or 75 percent to overall revenues, while subscription revenues contributed only 13 percent at 0.24 billion.
SVOD – Sustainable Model Going Forward
Due to the challenges of low television subscription rates and still evolving data and digital payments ecosystem, the SVOD model is yet to gain traction in India. Additionally, with an increasing focus on original content, input costs for platforms are set to rise manifold.
On an average, a 20–30 minutes' fiction content on digital can cost anywhere between 1.2 and 1.5 million, higher than content costs on television. With an increasing competition amongst OTT players, a subscription-based revenue model is a key to sustainability in the future. Compelling content strategy, friction-les onboarding and superior experience for consumers, and seamless digital payment options are prerequisites for consumer to consider paying for both data and content.
The Future – Vertical integration
The long-term success of OTT video platforms in India is likely to be centered on key strengths of content and distribution capability. While Hotstar was amongst the first movers in the OTT ecosystem and was a catalyst in rapid and early consumer adoption using cricket rights as a lever, Jio has further accelerated that movement, getting on board 100 million subscribers in less than 6 months through their free, high- speed, unlimited data services.
The telecom companies, with an access to more than one billion consumers, are a key driver of data consumption. With voice getting commoditized, data revenues are the key for telecom operators and the same are expected to grow from 275 billion in FY2016 to 955 billion in FY2021. Additionally, the established payments network of telecom operators could result in seamless SVOD provisioning for the users.
A combination of the distribution strength of telecom operators, combined with content creation capabilities of large media houses, would result in an end-to-end capability to provide a superior experience to the user. Digital continues to be the major revenue channel followed by publishing, events, and merchandising. Within digital, streaming continues to be the major growth driver.
With the rise of streaming platforms, content acquisition rates for popular content or content by popular artistes is surging. Monetization for such tracks are becoming a big challenge.
Based on a white paper by KPMG India-FICCI released at FICCI Frames 2017