OTT in India: Between a rock and a hard place

The head of a leading content studio has found herself in an awkward position more than once when out in public recently. It has become commonplace for aspiring writers and directors to walk up to the industry veteran and ask why the doors of major streaming platforms, which she works closely with, have suddenly shut for most newcomers with a pitch. “I have no idea how to tell them it’s a terrible time to be new in the (over-the-top, or OTT) industry. These platforms, which were meant to democratize opportunities for all those who came without lineage or backing, have seen massive cuts in budgets,” said the producer who didn’t want to be identified.

“Opportunities have shrunk and top executives have to be accountable to global parents, so they will obviously adopt more reliable, bankable routes. It’s all part of a larger mandate.”

For now, that translates into greater dependence on mainstream Bollywood and southern language films that can be acquired post theatrical release, more time to get back on scripts for originals, a bunch of low-cost, tightly packaged shows that can be streamed for free to attract advertisers, and most importantly, fewer risks. Even producers who have access, the person added, are holding on to pitches to be able to get a fair value, or secure at least a portion of what they’ve spent on the project.

As tough as it is to break it to those lower down the value chain, things are far from rosy in the video streaming industry, which is said to have reached a mature phase of consolidation in India. On the one hand, global giants such as Netflix, Amazon Prime Video and Disney are facing pressure on profitability, impacting their bullishness and spends in the country. On the other, industry consolidation—be it the Zee-Sony merger, or the possible sale of Disney’s assets to Mukesh Ambani’s Reliance Industries Ltd—is leading to a slowdown in commissioning and greenlighting decisions. Consequently, many producers are stuck with ready projects or ideas they want to pitch and take to the floors.

Meanwhile, new advertising-driven models are emerging with little clarity on revenue possibilities, since a major chunk of digital advertising goes to YouTube and Facebook, even with paid subscriptions slowly taking off.

The audience for OTT platforms rose by 13.5% in 2023, reaching 481.1 million people, up from 423.8 million in 2022, according to a recent report by media consulting firm Ormax. While this growth rate is significant, it falls short of the 20% surge seen in 2022. The growth rate isn’t low, Ormax had said, especially since penetration in rural areas and small towns, which make up a sizeable part of the population, stands only at 23% compared to the pan-India figure of 34%. But OTT platforms now face the challenge of whether consumption can grow beyond the top 20 cities.

On the ground, several filmmakers are not finding fair value for films that didn’t manage to break out at the box office. Many others, who stood to benefit from democratization of the medium and could create premium web series with solid writing and new, unconventional faces, find themselves out in the cold.

Switching strategies
Industry experts point out it isn’t entirely surprising that after an initial rush of bullish spending when they looked to consolidate their presence in India, video-streaming platforms are slowing investments in the country. Introspection and correction, they note, are part and parcel of any business. By 2022, spending had dipped by 50%, as the parent companies of foreign platforms reeled from the global downturn, with subscriber additions in India remaining tepid.

In 2018, these players, in their earliest phase of India operations, were spending heavily, seeing land grab opportunities. Investments were spurred by the covid-19 lockdown, when Indians tasted OTT blood, and its growth was advanced by several years.

“India is a complex and unique story. While we continue to invest in digital in a big way, the early years of (OTT) consumption that were spurred by the pandemic have now stabilized. At the same time, platforms have data and insights on what works for them and requires doubling down, and what doesn’t,” said Gaurav Banerjee, head, content, Disney+ Hotstar and HSM (Hindi-speaking markets), entertainment network, Disney Star. That said, the rise of connected television, higher disposable income and demand for quality entertainment leaves a lot of room for digital growth, he said.

In Hotstar’s case, for instance, local language content in Hindi, Tamil, Telugu and Malayalam, along with reality programming (Koffee With Karan, Dance Plus), has paid rich dividends. The streaming platform will continue to focus on these, said Banerjee.

Meanwhile, other major players such as Netflix and Amazon Prime Video, media industry experts say, are increasingly focusing a big chunk of their content bud- gets on acquiring high-budget, star vehicles that have released in theatres. The rates for such Hindi, Tamil, and Telugu movies have escalated to ₹125-130 crore in the past year, a trend that has led to reduced opportunities for low-budget films or those with lacklustre box office performances.

“All platforms have started looking at pricing differently, but it is the mid-level titles that will suffer. That is why for the overall health of the industry, the dependence on theatrical revenues has to return,” said Shariq Patel, chief business officer, Zee Studios. The company is making an effort to this end by releasing small-budget films in cinemas, as it did with the recent Manoj Bajpayee-starrer Joram, which would have presumably gone directly to OTT otherwise.

However, while Joram still has the backing of Zee, a corporate, there are about 200 Tamil and Malayalam films alone that have no takers at the moment, as platforms have veered towards big star and action films that assure returns. According to a recent report by Ormax, hit movies such as Jawan, Gadar 2 and OMG 2, starring A-listers, have done better on OTT platforms compared to web originals. Between April and November 2023, only 11 web originals managed a buzz above 20% (a measure of the proportion of the audience that could recall a film or show without being prompted, when asked to recall recently-launched OTT titles). In contrast, as many as 23 theatrical films achieved this level of recall.

This is definitely a time for caution, said Siddharth Anand Kumar, senior vice president of films and events at Saregama India Ltd, which owns boutique studio Yoodlee Films. However, that has meant bad news for many who don’t happen to be marquee producers but had banked on initial industry enthusiasm to put projects together. “Once any market constricts, a lot of people are stuck holding projects because it takes a minimum of two years to conceive and ultimately stream a show. A lot of bullishness present in the sector two years ago that led to commissioning and making of projects on a mass scale has dropped. This also means a threat to independently made titles that do not have anywhere to go,” Kumar explained.

At the same time, to build volume, streaming services are experimenting with shows that drop episodes regularly, a la conventional television, diverging from their established practice of dropping entire seasons at one go. Platforms hope the change in strategy will keep audiences hooked for longer, and control expenses at a time of pressure on advertising and subscriptions.

Going forward, some shows may have 30-50 episodes, even up to 100, and will be released in a staggered manner. Made with less-known faces, they will help control costs and improve viewer stickiness by keeping interest alive over a longer period. A lot of content will increasingly be free, supported by advertising, and follow the appointment viewing model, akin to TV serials airing at a particular time.

“We’re constantly experimenting and trying newer formats and content drop strategies because the Indian market is unique. Indians like to consume their drama in a much longer format—we like to see episodes dropping every day,” Banerjee said, citing the example of shows like Kana Kaanum Kaalangal and Aashiqana, which were made in this fashion and launched on Hotstar last year. The platform has seen value in the free streaming of sports content in 2023 and will look at more entertainment-based offerings outside of the paywall in the coming months.

Not the golden goose
To be sure, several premium platforms see value in advertising supporting their overall business in India. While Amazon has developed a separate ad-based offering called miniTV, others, such as aha Video, offer both ad-supported and subscription-based access to the same content. ZEE5 also has free streaming of select shows and short-form videos.

Globally, Netflix, too, has launched an ad-supported plan. However, it isn’t available in India yet. Industry insiders said production budgets for ad-supported content can be nearly 40% lower than long-format subscription-based video on demand (SVoD) shows.

That said, not all is well within the AVoD (advertising supported) universe. Advertising is good news in a market like India, which cannot afford to have ARPU (average revenue per user) drop further. However, nearly 65-70% of the digital advertising market is dominated by Google, Facebook and e-commerce players.

Several analysts feel the model will give the best results if web originals remain behind a paywall and catch-up television content continues to stream for free. Further, government policies have killed nearly 25-30% of advertising revenue, such as that from gaming. Start-up funding, too, has dried up. All of this in a year when monetization has suffered with sports rights such as the Indian Premier League (which streamed on JioCinema), the Asia Cup (cricket) and the ICC Men’s Cricket World Cup (for mobile users of Hotstar) going free.

“AVoD can be an initial ploy to acquire new users, but for profitability and recovery to kick in, SVoD is the only way forward. Moreover, retention and loyalty are in no way guaranteed with AVoD, so it is best for platforms to follow a freemium model,” said Sourjya Mohanty, chief operating officer of EPIC ON, the OTT platform owned by IN10 Media Network.

Without doubt, the impending industry consolidation also played havoc with plans in the OTT ecosystem last year. The $10-billion mega-merger of Sony Pictures Entertainment and Zee Entertainment Enterprises Ltd has plodded along for two years but the two companies have failed to find common ground despite protracted discussions, securing regulatory approvals, and spending over ₹300 crore in merger-related expenses.

In December 2021, Sony had agreed to take over Zee and merge it with its Indian arm to create an entertainment behemoth with over 28% market share. According to the original agreement, Punit Goenka, the current managing director and CEO of Zee, was meant to head the merged entity. But given the allegations of funds diversion from Zee via certain promoter group firms against Goenka and his father Subhash Chandra, Sony is unwilling to have him head the merged company.

Meanwhile, there has been rising speculation around Walt Disney selling its business in India, even though chief executive officer Bob Iger had said in the company’s September quarter earnings call that it would like to stay on in the Indian market. According to media reports, Disney and Reliance Industries have entered a non-binding agreement for a merger of their Indian media operations, under which Reliance will own a 51% stake via a combination of shares and cash, while Disney will hold the remaining 49%.

Uncertainty around the fate of these big firms has slowed greenlighting decisions as several content creators wait for things to ease out.

“A lot of things have remained up in the air owing to these mergers with a big part of company budgets currently just going to returning seasons of established franchises. Hopefully, OTT buying will resume after things stabilize,” said a senior content producer, declining to be named.

Like the producer, several others in the industry are waiting to know the fate of their ready projects or ones they had hoped to put together to cash in on the emerging digital entertainment ecosystem. The platforms are equally anxious, as the opportunity to cater to the world’s largest content viewing audience segment comes with more challenges than they had imagined. LiveMint