Streaming got its viewers but where are the revenues?

Over-the-top (OTT) video streaming platforms in India such as Disney+Hotstar, Netflix, Amazon Prime Video and Voot, among others, may be going deeper into the country but are far from making profits. The streaming firms are strapped with high content costs, low Arpus (average revenue per user), an overcrowded market with many options, including the availability of free ad-based platforms, and the challenge of piracy.

As competition heats up with more than 50 streaming services vying for eyeballs, platforms are investing big bucks on content. Other than creating web originals, the bigger platforms are also acquiring digital rights for new films. Video streaming services are expected to spend around ₹1,920 crore to create original content for India in 2021, a 17% rise over ₹1,400 crore spent in 2019, according to a Ficci-EY report. Netflix had said it would spend ₹3,000 crore on local programming between 2019 and 2020.

The steep costs could be recovered if the Indian consumers shelled out significant sums for monthly OTT subscriptions. However, a report by media consulting firm Ormax said 110.5 million out of India’s 353.2 million OTT audience watch paid content online. Yet only 40.7 million of them are actual paying subscribers. The discrepancy could arise from family members watching on common subscriptions or friends sharing passwords. Platforms are also losing 30-35% of revenues to piracy with popular shows available on torrents within hours of launch.

Besides, Arpus for OTT firms are low as more than 90% of their subscriptions are bundled with telco packages. This not only bring down direct subscription revenue but also require payment of a minimum guarantee to the service provider.

Bundling with mobile recharges definitely costs the consumer less, for instance, a Jio plan priced at ₹399 a month offers Netflix, Amazon and Hotstar subscriptions, which if taken individually, even on cheap, mobile-only plans would cost ₹199 (Netflix) and ₹89 (Amazon) respectively and ₹499 a year, in case of Hotstar.

“India has been a market used to watching free content. When audiences go to theatres, they are paying for the social and outdoor experience, not just for content. But with the arrival of SVoD (subscription video-on-demand) platforms, they are expected to pay for content that they will watch at home. This is a new thing for Indians, and they are still not used to the idea, which is why the SVoD base is still low,” Shailesh Kapoor, founder and chief executive officer, Ormax Media said.

In the West, multi-channel cable TV cost consumers more than $100 per month, while India still offers 300 plus channels at $4 a month, argued Mihir Shah, vice-president at advisory, consulting and research services provider Media Partners Asia (MPA). Besides, free-to-air television has also become very popular with more than 40 million homes opting for Free Dish, he said.

“People like to consume a lot of advertising-supported, user-generated or freemium content on platforms such as YouTube and other D2C (direct-to-consumer) services from traditional television broadcasters. So only serious players investing in building more depth of local and exclusive content will over time see better pay conversions of India’s vast video TAM (total addressable market),” Shah added.

SVoD platforms such as Netflix, Amazon Prime Video, Disney+ Hotstar, ZEE5 and ALTBalaji did not respond to Mint’s queries.

Akshay Bardapurkar, founder of VoD service Planet Marathi, said all OTT platforms are bleeding as subscriptions are getting distributed across multiple platforms. The cost of customer acquisition, marketing, and promotions continues to remain high, he added.

“Outreach is the biggest challenge because customer acquisition is a costly affair, piracy being the second, besides the need for continuous quality content production to bring customers back to the platform and make them feel that their money is spent on something worthy,” Abhishek Jain, founder of OHO Gujarati said. To be sure, all OTT platforms are vigorously investing in creating local content.

Interestingly, even ad-based platforms are not making money as a big chunk of video advertising is wrested by YouTube and Facebook. “The ad revenue of AVoD platforms still pales in comparison with these behemoths,” Mansi Datta, chief client officer and head, north and east, Wavemaker India said.

Paid subscriptions, however, may always be only one way of monetization for OTTs, said Karan Bedi, CEO, MX Player, an AVoD platform that expects 10-15% of its revenues in the future to come from subscriptions since it is rolling out paywalled content soon. “Another 10-15% will come from viewer interactions such as hashtag challenges, creative commerce, tying up with brands and gifting options,” Bedi said and added that advertising should make for the rest of the revenue.

Platforms and media experts aren’t worried about profitability in the near term. The current phase is more about growing the market than making profits, said Kapoor. For big global companies such as Disney, Netflix and Amazon, the Indian market carries huge potential, and investments in India are a fraction of their global spends. “People in India are still getting used to the idea of paying an unknown entity versus, say, a cable operator you know. But OTTs are focusing on long-term gains and everyone wants a share of the India pie because of the scale and volume it offers,” Mehul Gupta, co-founder and CEO at SoCheers, an independent digital agency. Live Mint