OTT Firms Opt For Creative Construction To Expand Base Of Paid Subscribers

Last year Netflix founder and CEO Reed Hastings created a flutter when he said he sees the company’s next 100 million subscribers coming from India. Wishful thinking, given that Netflix has just 1.3 million subscribers currently in India, according to IHS Markit data. Perhaps, but the US-based company took the first major step to expand its limited consumer base since its 2016 launch last week when it announced a new package, an only-mobile or -tablet subscription for Rs 199 per month. Currently, subscribers pay between Rs 499 and Rs 799 for various packs to watch on TV, mobile or laptop. Netflix executives say data showed that more members in India watch the service on mobile phones than anywhere in the world.

This is an aggressively competitive move in the nascent but crowded over-the-top or OTT media service industry in India. There are already 32 players (up from 12 in 2012), and Netflix and Amazon Prime are the two principal subscription-based ones – others such as Hotstar, now part of Disney, Zee 5, Sony and Voot from Viacom 18 offer a large part of their content free, supported by only advertisements.

The first challenge is retaining customers. Fifty percent of users uninstall their OTT apps within the first seven days, according to a report by the Boston Consulting Group (BCG). And with 81 percent of consumers having a maximum of three OTT apps on their smartphones, the battle for making it to the top three is getting fiercer.

At another level, the big boys are splurging to provide compelling content, the only key differentiator in this business. The problem is this content is five to 10 times more expensive than TV content. The six big players together invested Rs 2,700-Rs 3,000 crore on original content (including sports content such as Hotstar’s on IPL) last year. That figure will rise exponentially since most OTT players are expanding the number of original content offerings. “OTT companies that were producing three to five original programmes a year will now do 15 to 20 and the focus will be on quality and innovation,” says Rajiv Bakshi, CEO of content producer Big Synergy Media.

This could be a risk. The BCG report says the industry rustled up just $500 million in revenues, of which advertising accounted for 82 percent. If paid subscription remains the challenge, so do ad revenues. There are 300 million active subscribers every month on OTT platforms. But advertisers look for average daily active subscribers — which is 20 to 25 million, according to industry estimates, a fraction of what social media giants rack up.

“OTT platforms have to compete with the Facebooks and Googles, which get the bulk of the digital advertising pie because of huge numbers of daily active users. Until average daily active users go up in OTT, their share will be small,” says a senior executive of an advertising agency.

Still, there are upsides to the business for OTT players to tap creatively. One is online consumption habits. “There is no debate that video is the preferred mode of consumption on mobiles, so any consumption increase will always be followed by monetisation,” says Gourav Rakshit, COO of Viacom 18 Digital Ventures, which runs the Voot channel.

BCG’s reports predicts that over five years (from 2018-2023), revenues will jump tenfold, and subscriptions will account for 32 percent (almost double its current share). Most companies expect to break even in the next four years, if not earlier.

The potential for growth is robust —currently only 16 percent of media consumption is on digital (25 percent among the youth). Smartphone subscriber numbers are also expected to grow and so will data consumption. And the number of annual households with annual income of over $15,400, who can easily afford an OTT subscription, is expected to double from 8 percent in 2016 to 16 percent in 2025, BCG says.

But differentiated content will be the key to success. Zee 5, for instance, has focused on regional content and offers options in 12 languages. “We have 76 million active monthly subscribers and half of them see content in regional language. We are among the few to have produced original content in all the languages,” says Tarun Katial CEO of Zee 5 India. The company is also expanding its customer base through tie ups — like with Airtel and Vodafone who offer it free to some customers. It has also collaborated with travel portal makemytrip, which offer discounts on member subscriptions.

Voot, which plans to go the subscription route soon, is producing original content focusing on two segments —women and the youth. “We want to over-serve the two segments in which we have a lot of experience. Our conclusion is that it is big enough in the foreseeable future,” says Rakshit.

Meanwhile, Netflix and Amazon are betting on Indian content. Netflix has announced nine new original series and 13 new films and Amazon has been a big player in acquiring movie rights – Gully Boy is one example.

Jio from the Reliance stable is creating a bouquet of OTT offerings primarily aggregating content in music (it bought Saavn), cinema, TV and news. Most of this content is tied only to its 300 million-plus customer base (except music) and is free. But it is also taking the first cautious steps towards building original content for its subscribers through Jio Studios, say company sources.

Clearly, the next few years will determine the big boys of the game.―Business Standard