Linear TV still primary revenue source for broadcast networks

The high cost of content and technology is a challenge for over-the-top (OTT) platforms as it is not supportive of advertising or subscription-based revenue models, while linear TV continues to be stable despite little growth in ad revenue.

Despite making substantial investments in their digital businesses leading broadcast networks, such as Disney Star, Viacom18 and Zee, depend on traditional linear television as their primary revenue source, according to media industry experts.

While the digital businesses contribute 7-10% to revenues, impacting profitability, media experts anticipate exponential growth within a few years. The high cost of content and technology is a challenge for over-the-top (OTT) platforms as it is not supportive of advertising or subscription-based revenue models, while linear TV continues to be stable despite little growth in ad revenue. “Many people have jumped the gun in writing TV’s obituary. But for the next 5-7 years, TV will survive. If not grow, it will definitely stay at the levels it operates today,” Neeraj Vyas, business head, SET, Hindi Movies, Sony SAB and Sony PAL, said.

The pay and free-to-air television base is far from miniscule, while digital comes with its own issues, and the whole ecosystem is increasingly getting expensive with the higher fees for writers , directors, and actors, he said. “Networks seeing merit in both will have to balance the act.”

A media and entertainment industry report 2023 by Ficci EY said TV subscription revenues in India fell by 4% in 2022 following a decline in the paid subscriber base by around five million homes, while average revenue per user (ARPU) was stable as channel pricing was not increased during the year.

The decline in the number of pay TV homes was because of cord-cutting at the top end, as well as the movement to free television (DD FreeDish) at the bottom of the customer pyramid, it said. Furthermore, total TV subscriptions dipped to 165 million against 168 million in 2021, and 171 million in 2020.

“As far as the television business is concerned, revenue is fixed and investments that are made in production and infrastructure, ensure recovery. On OTT, however, the same costs are too high and recovery isn’t possible, even for advertising video-on-demand (AVoD), as value of free content is less,” said Vibhu Agarwal, founder of OTT app Atrangii, which also operates TV channels.

“For now, OTT players are able to get returns of 60-70% of their investments, for subscription as well as advertising revenues and everyone is operating at a loss,” he added.

Abhishek Joshi, the head of ShemarooMe said companies face a daunting task to amortizing investments in OTT originals. “A lot of it depends on how they allocate the costs (to different businesses), but OTT will always look less impressive as you’re looking at returns over 8-10 episodes versus 200 episodes on TV.”

To overcome the challenges, Joshi said experimenting with the simultaneous release of big-ticket content on both digital and TV could be a solution, or incorporating appointment viewing on OTT might prove beneficial in attracting and retaining audiences, he added.

According to a report by advertising firm GroupM, India’s ad revenue is expected to see 12% growth, reaching $17.3 billion in 2023. However, experts said while neither TV ad revenue nor costs are growing substantially, OTT original can cost 3-4 times than a linear TV show. “Even if they are not into sports, broadcaster OTTs can be looking at annual losses of up to 1,500 crore,” Karan Taurani, senior vice-president at Elara Capital Ltd, said.

Though growing rapidly, contribution of the streaming networks of Zee, Sony, Disney Star and Viacom18 to overall revenue is far behind TV, said Sahil Chopra, founder CEO of digital marketing firm iCubesWire. “Many factors are driving growth of streaming networks, and a promising future is in sight. Aggressive investments in creating on-demand content across streaming platforms, will also give rise to cut-throat competition among the prominent players,” he added.

Ajit Varghese, head–network, ad sales, Disney Star said of the overall spends for branding, TV commands a disproportionately larger share. “If you take total spends at $12 billion, half of it is on branding. Out of this, $5 billion is being spent on TV and $1 billion on digital. Of the performance marketing budgets, digital gets a higher share,” he said. LiveMint