Will OTT platforms succeed in getting paid subscriptions when free content is easily available

the year was 2016 when video OTT platforms came as a breath of fresh air for 31-year-old Sanya Kelkar. The Pune-based IT professional had grown sick of the incessant ads, inconvenient scheduling and passé content available on traditional linear television.

Cut to seven years later, and many Indians like her love watching online video content. Indians spent 6.1 trillion minutes or over 11 million years watching videos in a span of 15 months between January 2022 and March 2023, per estimates from Media Partners Asia. But Indians also love free content—88 per cent of that time was spent on YouTube, while the rest was spent on OTT video streaming apps.

After enjoying a boom for the past few years, the 60-odd OTT platforms in India are now faced with a challenge: How to scale up their costly content business in the entertainment-crazy but price-conscious Indian market, especially when the viewers are spoilt for choice. After all, the world’s most populous nation’s estimated Rs 13,000-crore video OTT market has a 60-40 split in favour of revenues from advertising-based video-on-demand (AVoD), or low-cost ad-supported platforms.

TRIALS & TRIBULATIONS

Manish Kalra, Chief Business Officer at ZEE5, says the challenge now is the customer’s intent to pay. “On the AVoD side, we have 100 million MAUs (monthly average users). How do we convert them into paid users?” he asks. The platform offers the first episode of its original shows for free to get viewers to subscribe, but he admits the conversion rate is in the low single-digits.

The average Indian viewer is used to paying around Rs 300 a month for cable or direct-to-home (DTH) subscriptions. But even a top-end telecom-bundled pack of 10-12 OTT apps costs Rs 1,000-1,200 a month. And subscribing even to the top two or three OTT platforms costs upwards of Rs 3,000 a year. And there are around 60 platforms on offer currently.

“Eventually, how many subscriptions will a person subscribe to? On an average, people have two to three subscriptions. We are the local OTT [player], then there are national and international ones,” says Ajit Thakur, Co-founder and Director at aha, a regional content streaming platform, adding that their hyperlocal regional content holds them in good stead.

It’s an expensive proposition even for urban users, while the yet-to-be-tapped viewers from smaller cities and towns of India are typically conservative spenders. “Indian consumers are value conscious and not price conscious. They are not subscribing to a service because it’s cheaper than the rest, but because of its value proposition,” says Sushant Sreeram, Country Director at Amazon Prime Video, India. He adds that a single Amazon Prime membership gives customers shopping, savings, and entertainment benefits.

The recently released FICCI-EY Media & Entertainment Report 2023 pegs the number of households paying for at least one subscription video-on-demand (SVoD) service inching up to only 52 million by 2025 from 45 million currently, if the current pricing is maintained. The report’s author and EY’s Media & Entertainment Leader Ashish Pherwani says OTT is a relatively expensive product in India, and the market can be doubled if the prices are reduced. “Cutting content costs is not much of an option because that will always be a platform’s USP. It will have to be on customer acquisition, tech, content mix and other costs. We need bundling [of more offerings] for the OTT segment to reach scale.”

Creating content is an expensive affair and the platforms have been going hammer and tongs at each other to pump investments into creating content for the Indian market. But customer acquisition is also costly, especially as all the streaming players are vying for the wallet and mind share of the same set of 45-50 million SVoD users in the country. Some of them shell out as much as Rs 2,000 per customer to earn Rs 500 in revenues.

GETTING IT RIGHT

Today, nearly all the OTT players fall somewhere on the ‘freemium’ spectrum, where some content is behind a paywall and some is available free to watch, but with ads interspersed between them. On top of that is a dizzying array of annual, quarterly, monthly and mobile-only price plans. For instance, pure-play SVoD platform Netflix plans to roll out ads, while regional SVoD player aha has pivoted to a hybrid model. “It is doing well for us. The revenue split is 70-30 towards SVoD. A year ago, it was 90-10,” says aha’s Thakur, adding that the shift is happening not because subscription revenue is coming down but because ad revenue is rising.

Indians are primarily a TV-watching audience who are okay with watching ads in between, say experts. Pankaj Krishna, Founder and CEO of Chrome Data Analytics & Media, says India’s premium audience is a small number, and the paid market will never be as big as free. “Everyone is experimenting right now but the only conclusion seems to be that you cannot survive without an AVoD layer,” he says. “If you want to be a business of scale and be a big boy in India, you have to go ad-supported. Subscriptions can be 20-30 per cent of your revenues,” said Nachiket Pantvaidya, former CEO of ALTBalaji, at the FICCI Frames 2023 event held recently in Mumbai.

That is not to say that pure-play AVoD works well in India. Case in point: AVoD platform MX Player is reportedly being acquired by Amazon Prime Video for Rs 350-400 crore, a sum significantly lower than the Rs 1,000 crore that current owners Times Internet had paid for it in 2018. Reliance Industries-backed JioCinema, which shot into prominence with its free streaming of cricket tournament Indian Premier League (IPL), has also introduced a paid layer on its OTT platform and announced over a hundred pieces of original content just weeks ahead of the IPL finals. Digital ad revenues are hard to come by for the OTT players as social media websites and search engine firms such as Meta and Google (including YouTube) corner almost 90 per cent of the pie because that’s where the eyeballs are turned.

The refrain among OTT players is that both SVoD and AVoD will co-exist. “No one in the entertainment business knows what’s going to work,” says a senior Disney Star executive, requesting not to be named. “But one thing is for sure, it’s unfair to expect people to subscribe to so many platforms. They will not do it. All we can do is work on content and enhance our USP.”

As of April 2023, Disney+ Hotstar is the country’s largest OTT player with a majority of its 52.9 million subscriber base belonging to India. But it has lost 8.4 million subscribers since October 2022 due to the void created by IPL streaming moving to JioCinema.

In the race to crack the right revenue model, platforms are also making a pit stop at transactional video-on-demand (TVoD) services, where viewers are provided limited-period movie rentals at prices lower than full subscription fees. ZEE5, for instance, has rentals ranging from Rs 29 to Rs 349. Kalra of ZEE5 says this is how cable TV and DTH evolved when it went behind a paywall—through bundles, sachets and configurable price points. “We want to scale up our TVoD services this year because that gives viewers the option to sample a lot of content. Pricing is important, but right now the focus is on expanding the market and building the subscriber base.” He adds that rentals bring in a low, single-digit percentage of ZEE5’s total revenues. Amazon Prime Video also permits users to rent movies. “The thought is simple: expand the choice available to our customers through industry-wide collaborations, and make streaming an even more convenient experience,” says Prime Video’s Sreeram about its marketplace hub—Prime Video Channels and Movie Rentals—which provides access to content beyond the Prime subscription.

But TVoD has a flirting audience, and it is riddled with the discomforts of using OTPs and credit cards with every use, says Chrome’s Krishna. Kalra likens it to the FMCG industry’s successful attempt at expanding into the rural markets with the Rs 1-shampoo sachets. “Does TVoD get me more of those subscribers, or does it take away from the annual subscribers? We’ll learn,” he says.

PACKING A PUNCH

To be sure, the SVoD market is poised to grow as the Indian OTT market expands. But an estimated 50-75 per cent of SVoD revenues come from telecom bundling now. “Most subscribers [for OTT platforms] come from bundling with telcos, where you have a lot of people in a telecom plan. But how many people activate their accounts? What is their engagement?” said Monika Shergill, VP of Content at Netflix India, at an event in Mumbai in May. “It’s early days for the industry, but it’s not as early to become responsible in terms of what model of streaming we are building,” she added.

And with the economics of streaming only content pinching hard, OTT platforms are now looking beyond video to give more bang for the Indian viewer’s buck. Pantvaidya says the real scale for OTT lies at the intersection of e-commerce and retail, as it can straightaway augment the addressable market. “AVoD-SVoD is a done deal where AVoD has already won the race. So, the next question is, can I sell soap and car on this,” he says.

That is precisely the model that Amazon Prime Video runs, where its shopping benefits give it a huge edge over rivals. In fact, the platform says India has amongst the highest proportion of Prime members who stream Prime Video every month. Reliance Industries-backed JioCinema, meanwhile, has access to the over 400 million telecom subscribers of Reliance Jio. And Netflix, considered a niche platform with its 6 million-odd subscribers, is betting big on gamifying its popular original series such as Narcos and Stranger Things. “Those who don’t have a content-plus edge will either combine or collapse,” says Pherwani. “Right now, everyone is bleeding and everyone is simply investing. In five to six years, they will either get acquired, merge with each other (consolidate), or turn profitable. Any combination of content and distribution that has abundantly deep pockets or is skewed towards AVoD or eventually goes on to be a part of an e-commerce or telecom play will be the killer,” says Chrome’s Krishna.

The sector is already seeing consolidation. SonyLIV and ZEE5’s parent organisations Sony Pictures Networks India and Zee Entertainment Enterprises Ltd (ZEEL), respectively, are in the midst of a merger. Amazon Prime Video is also reportedly in talks to acquire MX Player.

As the players fight it out for Indian viewers’ attention with pricing subsidies and jazzed up offerings, all the while trying to strike the right balance between AVoD, SVoD and TVoD, the party for the Indian consumer continues. But the likes of Kelkar yearn for the good old days of OTT. “What once felt like a revolutionary departure from traditional TV has gradually morphed into something familiar—ads are back and so is appointment viewing, with many shows like Citadel releasing new episodes periodically. Isn’t that a threat to the freedom and flexibility of content viewing [offered by OTT platforms], despite paying for a handful of them?”

@SaysVidya, @PLidhoo