KPMG India’s new report entitled ‘The Digital-First Journey’ addresses the growing challenges that over-the-top (OTT) platforms in the country are facing in remaining ‘on-demand ready’ in a hyper-competitive landscape.
The report makes several observations including the fact that OTT content consumption is evolving from niche to mass-based content and long form content is gathering traction and the fact that with improving digital infrastructure and falling data costs, digital consumption is expected to become more mainstream.
Furthermore, in the long run, the success of OTT platforms would be a direct function of increasing user stickiness. Also, the significance of content for an OTT player has led to the blurring of lines between content creators and platforms. One area that is growing is live streaming over digital platforms like sports events. Potential can be judged from the price that online social network Facebook was willing to pay for the IPL rights. Regional language content is emerging as a focus area for OTT platforms. Monetisation models are evolving to a mix of ad and subscription based revenues. Having said that, digital measurements and piracy remain significant monetisation challenges.
Commenting on the OTT evolution in India and road ahead for digital and digitizing businesses in India, KPMG India co-head, media and entertainment Girish Menon said, “OTT consumption in India has reached a tipping point, with the 4G rollout and related data wars which have resulted in a dramatic and rapid growth in internet penetration and video consumption. This has also fundamentally altered the consumption demographics and patterns, with OTT viewership becoming more mass.
“Organisations can no longer afford to take baby steps and will need to wholeheartedly commit to build out their digital businesses. However, pivoting to a digital business requires a change in organizational DNA and a ’digital first’ mind-set. Building a digital business is an evolving process and organizations would need to adopt a systematic approach balancing scalability and flexibility with speed to market and customer centricity.”
OTT video consumption in India has rapidly evolved over the last year, given the advancements in digital infrastructure and efforts by platforms to create compelling content for consumers at price points which provide value.
“There are about 200 million online video viewers in India currently, which is set to exceed 400 million in the next couple of years. Although the catalyst for online video boom was Reliance Jio, the trend now has wings of its own. With data set to be the dominant source of revenue for the telcos, and possibly home broadband seeing traction in the future, the video consumption growth is here to stay,” said Viacom18 Digital Ventures COO Gaurav Gandhi.
Market potential: Growing internet penetration and data consumption is likely to help increase digital advertisement spends in India at 30.8% CAGR between 2016 and 2021 with mobile advertisement spends and social media aided digital video advertisement spends expected to grow at 50.9% and 40% CAGR between 2016 and 2021 respectively.
The OTT landscape in India is punctuated by the following key enablers, around which both the growth of the segment as well as potential success of platforms are woven.
Digital infrastructure: The mass launch of 4G services by Reliance Jio in H2, 2016 and subsequent launches by incumbents was an inflection point in India’s data story. This disruption led to a rapid surge in data usage on the back of promotional offers by all leading telecom operators.
Further, other enablers such as Government of India’s ‘Digital India’ initiative, growing usage of affordable smartphones, rising internet penetration in rural India and rapid growth of digital payments has further strengthen India’s digital infrastructure. This has resulted in video dominating data consumption, which is expected to continue to grow in the near future.
OTT content consumption and evolving trends: The OTT content consumption is evolving from niche to mass based content and long form content is gathering traction. The increased popularity of large screens and investments in original content creation is further driving the consumption. Live streaming has emerged as a focus area for OTT players, with the sports genre especially attractive from a viewership and monetisation point of view.
OTT distribution: The OTT distribution landscape is dominated by own platform players, although social media platforms YouTube and Facebook still constitute a major chunk of video viewership in India. With telcos betting big on data, partnerships with telcos is also emerging as an important medium to reach a fairly large, and a mass user base.
Monetisation models and associated challenges: While Advertisement Video on Demand (AVOD) remains the primary source of monetisation for the OTT players in the country, the Subscription Video on Demand (SVOD) and Freemium models are seeing traction, largely on the back of compelling content, including sports. Sponsored content has also emerged as an important monetisation tool, with brands baking in the advertising messages into the content itself.
The growth in monetisation, though, is partially held back due to challenges around digital viewership measurement and rampant content piracy which must be addressed in order to realise the true potential of OTT platforms and build a sustainable model in the future.
Further, digital video businesses require high investments, and returns are currently not commensurate given the still evolving business models. Media organisations are currently attempting to bridge the gap between market share acquisition and economic viability, as they attempt to build long term sustainable digital video businesses.
“Being passionate or even finicky about user experience is the key to building a successful digital platform. In this age of hyper competition, it is imperative to focus on building a strong brand which is differentiated. With over 200 million people in India every month and millions globally on the platform we think deeply on the best user experience we can provide and Instant Articles, LIVE etc. are such examples,” explained Facebook head media partnerships Saurabh Doshi.
Changing consumer demands: When users stream videos on their mobile phone through an OTT platform, little do they know the entire digital infrastructure that is set in motion to ensure that the content streams flawlessly. It is this internal infrastructure that defines the ‘OTT player of today’, and is a key ingredient for ensuring continue success in the competitive OTT landscape.
The adoption of digital infrastructure has evolved from resistance towards digital technologies to their mass adoption. Success in the digital world is dependent on various factors such as time to market, customer experience and the will to constantly innovate and change with the relevant developments in the market. This requires OTT platforms to identify and design digital solutions comprising strategies to predict, influence and respond to customer behaviour.
Building a successful digital video business in the long run requires sustained commitment to the digital transformation process and a ‘digital-first’ mind-set.
The four pillars of digital transformation: The path to digital transformation encompasses a holistic approach including; clearly defining the organisation’s digital vision and strategy, thorough understanding of the customer proposition, accurately assessing the business design and, finally, carefully designing the execution plan.
The report also points out the key drivers for successful digital transformation:
• Innovation-focused mind-set: Innovation has become hygiene for OTT players, given India’s crowded platform market. For a fruitful digital transformation, it is critical for the leadership to evaluate their business through a number of facets and set up in-house labs to drive both internal and consumer focused innovation. Companies could also look to set up incubation centres in the form of accelerator programmes, or partner with third-party innovation labs.
• Integration across organisational DNA: Digital transformation requires a holistic strategy that permeates across the entire organisation including front, middle and back offices. The OTT organisations should move past silos that have a traditional media (e.g. TV) bias and adopt a ‘Digital First’ mind-set.
• Data analytics: Data has evolved in type, volume, and velocity with rapid uptake of digital technologies. It has become a new currency and key for OTT players to understand the consumers and decode their viewing patterns. Big data technologies along with advanced analytics help answer key content and engagement questions, enable quick reaction and draw meaningful and actionable insights to fuel the customer facing productivity and enhance overall performance of the platform.
• Data protection and IP security: With OTT business models inherently digital in nature, data and content security has become even more paramount. It is vital for the platforms to protect data and content across systems, devices and the cloud.
• A successful transformation needs a strong technology foundation: A strong technology foundation acts as the backbone of any digital transformation initiative.
The pivot from a traditional IT to ‘today’s’ digital function is underlined by an architecture that is agile, flexible, and is able to deploy technology frameworks to give quick insights for decision making around customer behaviour and content strategies.
The ‘all-in’ commitment of the entire organisation to the cause is a non-negotiable and is a precursor to embarking upon the technology deployment.
In conclusion, the digital transformation journey of a media company comprises a marked strategic shift, with customer centricity at the core, and an internal thinking process that needs to change the organisational DNA into ‘Digital First’ mind-set.
“The tools, culture and training that people require to know what content to create, and create it at scale are a different breed, even though they borrow from the way traditional television companies or creative agencies operate,” said Culture Machine Media CEO Sameer Pitalwalla.
“As we transition into the new era where there is big focus in building direct to consumer digital businesses, one can derive substantially better results if one uses the power and the collaboration of the entire organisation—particularly the established broadcast businesses. Successful businesses will be built when both units (digital & broadcast) synergistically operate and when one ensures participation of maximum number of people in the organisation in this digital journey,” added Gandhi.
The Indian M&E sector is poised to reap the digital dividend: With increased digital media consumption, stakeholders across the M&E value chain are embracing the change and experimenting with newer models of media consumption. This has led to a marked shift in advertising spends with marketers increasingly apportioning a larger piece of their advertising budgets to the digital media platforms. Globally, the share of digital advertising spends is estimated to supersede television advertising spends by the end of 2017 and account for around 37% of total advertising spends.
Digital advertising is expected to contribute nearly 27% to the total advertisement spends in India by 2021, reaching a size of Rs 294 billion, up from Rs 76.92 billion in 2016, translating into a CAGR of 30.8% over 2016–21. With mobile phones being the primary mode of digital consumption in India, mobile advertising spends are expected to grow faster, projected to reach Rs 132 billion by 2021 from Rs 16.9 billion in 2016, at a CAGR of 50.9%.
Although search and display advertisements remain the largest component of digital advertising spends with a 47% share, this segment is relatively mature and is expected to grow at a slower pace when compared to video advertisements. However, video advertisements, which is currently about 18% of the digital ad spend, is expected to grow at a CAGR of 40% by 2021. Non-metros now account for almost 30% of YouTube watch time, backed by regional content, better devices and increasing internet access.
Social media driving advertising spends: Advertisers are innovatively leveraging social media channels, such as networking websites and blogs to connect with their target audiences. Digital ads on social media platforms registered a 28% contribution to global digital ad spends, with Facebook accounting for 15% of the digital advertising spends.
In India, social media’s increasing traction amongst consumers is largely linked to platforms such as Facebook and Twitter, which have also tasted success by attracting the country’s marketers. Monetising social media is becoming lucrative and brands are allocating increasing digital budgets to social media promotions.
With improving digital infrastructure and falling data costs, digital consumption is expected to become more mainstream. The ensuing growth in investment by advertisers, buoyed by evolution of the audience measurement technologies are likely to continue to drive growth in digital ads over the next five years.
Digital and payments infrastructure leading to rapid growth of VOD services: India is currently in the midst of a data consumption boom triggered by a growing and deepening digital infrastructure. The report has identified several triggers.
• The launch of Reliance Jio in September 2016 has been a watershed moment, which disrupted the telecom data landscape and significantly contributed to the growth of internet usage and penetration.
• The government continues to make efforts towards its long-term focus of creating a digital economy with emphasis on mobile governance through the ongoing ‘Digital India’ and ‘Smart Cities’ initiative coupled with the ubiquitous Aadhaaras the backbone of digital addressability in India.
• Another critical long-term trigger is the evolution of the digital payments infrastructure, on the back of growing usage of mobile wallets, Unified Payments Interface (UPI), Bharat Interface for Money (BHIM) in addition to the traditional digital payment instruments. Currency demonetisation in November 2016 acted as a catalyst to push digital payments into the mainstream.
Digital India: The government’s ‘Digital India’ vision envisages a ‘connected’ India, right up to the villages, democratising information availability for all.
The BharatNet project under the ‘Digital India’ initiative aims to deploy high speed optical fibre cables in rural areas to provide connectivity to 2.5 lakh Gram Panchayats and deploy 25,000 Wi-Fi hotspots at rural telephone exchanges by 20195. Though the rollout has been slower than originally planned, the project has managed to connect 1 lakh Gram Panchayats and lay down nearly 2,20,000 kilometres of optical fibre cable as of August 2017.
The budget allocation for BharatNet has been increased to Rs 100 billion in FY18 from Rs 60 billion in FY17 to further expedite the project. Public Private Partnership (PPP) models are also evolving, with Google in partnership with RailTel as a backhaul provider to enable 400 railway stations in India with public Wi-Fi hotspots; and BSNL partnering with Facebook to set up community public Wi-Fi hotspots in rural India.
Impact of 4G: The entry of Reliance Jio has led to a fundamental shift in the way subscribers consume data. As on March 2017, 70% of all wireless internet subscribers in India were consuming data at broadband speeds. Average data usage per subscriber took a huge leap from 147 MB/month in March 2016 to 1 GB/month in March 2017 backed by falling data costs, a trend triggered by Reliance Jio and followed by the incumbents. The average user outgo per GB of data for GSM connections declined sharply from ~Rs 200 at the end of June 2016 to Rs 6.4 at the end of March 2017.
The same has also led to surge in wireless internet connections, with India forecasted to have 730+ million wireless internet users by FY219. It is expected that high speed data connections (4G+3G) would comprise of 88% of all wireless internet users by FY21, increasing from a base of 260 million in FY17 to 690 million by FY219.
Another positive contributor the report noted has been the steady growth in mobile device penetration, resulting in the smartphone becoming the primary device for media consumption. Number of smartphones crossed 300 million in 2016 and are expected to cross 650–700 million by 2020. The average selling price of internet-enabled mobile phones is currently just below Rs 9,000, which is half of that in China. However, with the launch of 4G enabled feature phone at Rs 1,500 by Reliance Jio, and Airtel’s proposed 4G smartphone at Rs 2,500, the market is set for the next wave of disruption, and the number of video enabled devices could go much higher than 650–700 million by 2020. Lower smartphone prices bundled with 4G data plans is set to create a ripple effect increasing the smartphone penetration, 4G consumer base and data consumption.
Video: An average consumer spends about three to five hours on media per day, of which, ~35% time is spent on digital media consumption on mobile phone. Video currently accounts for almost 50% of the data traffic and is set to increase to 75% by 2020.
Consumers are starting to spend more time viewing media on the go, given the changing lifestyles. While sharing online videos on social media and consumption of short-form video content has been the first wave of data consumption, long-form content consumption is now seeing rapid growth on the back of improved connectivity and lower data costs. The consumers are moving from ‘what’s on TV’ to ‘what do I feel like watching’ mind set.
Rural internet: As growth in urban internet penetration moderates, rural India is set to drive the next phase of growth in India. Better digital infrastructure and entry of affordable smartphone segment is set to change the internet landscape in the years to come. As on March 2017, 34% of all internet users in India were from the rural areas. However, at a 16% internet penetration, the rural base holds significant growth potential. By 2020, 50% of India’s internet users are estimated to be from rural India.
Digital payments: The government’s initiatives to usher in an era of a cashless economy, have achieved a big boost through the demonetisation drive that was carried out in November 2016.
Digital payment methods such as mobile wallets, UPI and card payments achieved significant growth post demonetisation. There was a surge in wallet transaction volumes by over 250%. India currently has more than 50 million active wallet users, and is expected to reach 350 million by 2022.
The introduction of UPI and incentive by the government for promoting the usage of BHIM is likely to bring the masses on board the digital payments ecosystem.
Availability of seamless payment options is expected to increase the acceptance of digital payments amongst consumers, resulting in positive implications on the monetisation of digital assets. Further, direct carrier billing is also gaining traction especially among SVOD/Freemium players and will aid monetisation through integration of subscription costs with mobile bills. Players such as Ditto TV, Hooq and ALTBalaji have integrated carrier billing to offer unified payment options to their potential SVOD subscribers.
Evolving digital content consumption: The Indian media consumer, young Indians in particular, spend nearly four hours watching television per week as compared to 28 hours on mobile, of which 45% of time spent is dedicated to entertainment. There is a continuous shift towards convenience based, on-demand viewing.
Further, given that most households in India are single TV households, there is a growing trend of solo viewing particularly among the younger generation. The OTT video viewing is likely to continue increasing by 32% annually through 2020, with half of the consumer population expected to follow solo viewing methods.
However, until recently, OTT video viewing was seen to be a niche play, targeting the youth, upwardly mobile, early adopter segment. However, 4G data wars have disrupted the consumption patterns with data consumption widening and deepening across the length and breadth of the country, demography and socio-economic classes.
From niche to mass: Historically, OTT could not capture eyeballs in the mass consumer segments, and thus the content was being produced keeping in mind the niche target audience. Global players such as Netflix are largely restricted to English speaking audiences located in urban areas and even Amazon Prime Video’s and Hotstar’s content play is currently largely urban focused. However, the next 200 to 250 million VOD users are likely to come from the middle class, the masses and regional languages.
Once known for niche content such as select movies and catch-up TV, the OTT market is now creating content for the mainstream audience, with shows such as ‘The Timeliners’ (a new YouTube channel) the ‘AamAadmiFamily’, which is aimed at appealing to the average middle-class Indian household. OTT players are recognising the importance of the well-tried Indian formula of family drama with comedy and clean language to attract the masses. The content strategy of ALT Digital media, by Balaji Telefilms, a platform providing original Indian, family content targeting the masses, a positioning somewhere between Netflix and prime time Hindi soaps.
Platforms such as Hotstar, Netflix, and Amazon are also investing heavily in building local movie libraries and original content designed with a wider and more mass appeal. The recent high levels of bidding for IPL digital rights also follows the same trend.
Long-form content seeing traction: The VOD content was initially seen as being consumed largely during transit/travel, and thus short form content traditionally gained immense popularity. Short comedy clips (5–10 minutes) from producers such as AIB and webisodes (15–20 minutes) from the likes of TVF were the mainstays of OTT platforms.
With the continual improvements in internet data speeds and technology enabling quality streaming with low data consumption, long form content has started to see greater traction. One of the most popular global series, ‘Game of Thrones’, has each episode greater than 50 minutes, and resulted in Hotstar gaining immense popularity amongst viewers. ‘Big Boss’, with an average episode size of around 50 minutes, is one of the biggest draws on Voot, with the platform also airing extra, unedited content to attract viewer interest. Heavy spends by Amazon Prime Video and Netflix for acquisition of Bollywood movie rights also points to the potential of long form content viewing on OTT platforms.
Growing popularity of large screens: The device ecosystem has also helped long form content consumption, with the likes of Amazon Fire Stick and smart televisions helping video streaming on large television screens. Sale of smart TVs has increased to 18–20% from 12–14% of the entire TV market owing to strong urban demand (65–70% of the entire market). Further, high-definition (HD) content on large screens provides a much better viewing experience than the smartphone screen.
In the long run, the success of OTT platforms would be a direct function of increasing user stickiness, which in turn would be helped by adoption of long form content on bigger TV screens.
Investments in original content: The significance of content for an OTT player has led to the blurring of lines between content creators and platforms. Players such as Netflix and Amazon, which started out by licensing content, branched out to commission their own original programming with ‘House of Cards’, ‘Orange is the New Black’, ‘Mozart in the Jungle’, ‘Transparent,’ etc.; the success of which has been a major factor in driving consumer adoption and stickiness on their respective platforms.
Original content primarily enables platforms to create differentiation and drive user engagement and stickiness. Additionally, for broadcast networks, original content enables cross platform user engagement and retention.
For instance, Voot offers extended ‘Bigg Boss’ clips which include content that is not otherwise aired on TV, though at no extra cost. On the back of this exclusive content, Voot generated more than hundred million views for ‘Big Boss’ in the first two months of its launch in 2016.
Additionally, with original content, the platform owns all the essential intellectual property rights from the outset. In addition to granting exclusivity, owning the underlying IP rights gives access to the potential for future licencing revenue opportunities.
Additionally, the ‘reality show’ genre is also being explored by the OTT players, with Amazon announcing three reality shows for the Indian market including, ‘Jestination Unknown’, ‘Comic Kaun’ and ‘The Remix’, slated to be aired in early 2018.
However, investments in original content needs to be balanced with economics given the dependence on AVOD models. Considering the fact that a 20–30-minute fiction content on digital can cost between Rs 1.5–2.0 million, higher than the content cost on television; monetisation only through an advertisement (AVOD) based monetisation model could be challenging and SVOD/Freemium models would need to be explored for long-term sustainability.
‘Live’ streaming: Live streaming over digital platforms is on the rise. Major sports events, news, high-profile entertainment events, concerts and product launches are beginning to see traction in terms of being streamed live. Social networking websites like Facebook, Snapchat, Instagram, and YouTube have activated live streams where users can share their real-life experiences.
Live streaming helps event organisers get access to a larger audience and incremental revenues via a new distribution medium Global brands, such as Target and BMW, have started using live streaming to launch products and run marketing campaigns. Recently, the launch of Vivo V7+ phone in India was streamed live on various social networking and OTT platforms. Other phone makers such as Xiaomi, Samsung also streamed the launch of their new models in India on Facebook and YouTube respectively.
Hotstar also streams live news from Republic TV amongst other channels such as Fox News, Fox Business, and the UK’s Sky News. Traditional players such as Times Now and NDTV are using their digital presence for events such as the Budget speech, election results among others.
However, the Sports segment has a significant value for the consumer when viewed live and lends itself well to potential monetisation. Live sport broadcasts garner high advertiser interest and ad rates both on linear television broadcast as well as live streaming, case in point being ad rates on OTT platforms, which have nearly doubled y-o-y for the IPL and Champions Trophy. The potential of this sub-segment could also be gauged by the recent IPL auctions where Facebook bid a substantial Rs 39 billion for digital video rights for five years.
Regional language content as a key focus area: For a nation with 1,600 dialects, 30 languages and over 234 million language internet users, content in their own language holds significant value for consumers. Regional language users, usually face difficulties in accessing English keyboards and have not had too much of a choice when it comes to accessing local language content online.
However, with the continued increase in regional language user base, this is one segment that digital companies cannot afford to ignore. The Indian internet language user base is expected to grow steadily at a CAGR of 18% to reach 536 million by 2021. Roughly nine out of 10 new internet users in India are likely to language users over the next five years. By 2021, Marathi, Bengali, Tamil and Telugu internet users are expected to form ~30% of the total Indian language internet user base and the number of Hindi internet users is expected to surpass the number of English users.
The government is also undertaking several initiatives to promote digital literacy with the aim of reaching 60 million rural households with an investment of Rs 23 billion by March 2019. The government’s ‘Digital Saksharta Abhiyan’ (Disha) mandates handset manufacturers to add support Hindi text support in addition to at least one more official Indian language.
The regional potential: Nearly 60% of regional language based internet users prefer to consume regional news, with 32 million language users consuming news exclusively on digital media.
Further, the video viewership in India is dominated by the regional language user base which is gradually increasing. Consumers today spend time about 50–60% of the average time on Hindi videos, followed closely by 35–43% on regional content videos with only 5–7% on English. The OTT players are recognising the regional opportunity and thus are planning investments in creating original regional content.
Hotstar has a large regional content library with more than 50,000 hours of content in eight languages and has now launched an original Tamil web series. Voot envisages offering content in Kannada followed by Marathi and Tamil in the latter half of 2017. Sun TV also recently launched its OTT platform Sun Nxt which offers 4,000+ movies, live TV channels and TV shows in four South Indian languages namely Tamil, Telugu, Malayalam and Kannada.
Effective distribution strategy critical to reach the target audience: Effective distribution of content is among the critical factors that determine the performance and long term monetisation potential of a VOD service provider. The selected distribution model also impacts long term brand equity, viewership levels and consumer stickiness.
Creating own platform: Setting up an own platform allows content creators to establish their brand, retain IP rights, control user experience and identify key user touch-points. Usually, own platforms are best suited for a Freemium monetisation model, as ‘for-digital’ content entails a high production costs which needs to be suitably recovered through subscription revenues. However, platform owners have to contend with high customer/traffic acquisition costs and limited opportunities around content syndication with rival platforms.
Global majors such as Netflix and Amazon have built their own platforms and a resultant brand equity and customer recall associated with them. Disney has recently announced an end to its association with Netflix in 2019 and roll out its own platform for both television and movies, as well as ESPN. BBC has also tied up with ITV to launch a SVOD based service, BritBoxin the US.
Looking at the Indian market, broadcaster backed platforms such as Hotstar, Sony Liv, Ozee and Ditto TV (Zee), global players Amazon and Netflix, and others such as Eros Now and ALT Balaji, have created their own platforms, backed by library content and are now moving towards creating originals.
Building a presence across social media based video platforms: Hosting content on YouTube has been one of the simplest and effective distribution models, especially for pure play content players with limited resources to create an own platform. Of late, Facebook’s video platform has also gained traction with many producers distributing content through dedicated Facebook pages. These platforms provide producers with access to a large audience, at a fraction of the associated customer acquisition costs. The revenue models are AVOD based, with platforms usually withholding a substantial chunk (50%) of the CPMs as platform access fee.
However, this distribution model poses major challenges around content discovery and brand dilution, as these platforms have a large library of similar, competing channels; with the possibility of declining CPMs as bargaining power of platforms grow. Indian content producers such as Chu ChuTV (Kid’s rhymes), AIB and TVF (Comedy) have registered immense popularity on YouTube platforms by adopting this model.
Third party licensing/syndicating content: Hosting content or syndication deals with third party OTT platforms provides content producers avenues to reach a ready user base with no investments in infrastructure. The revenue models in such cases are usually on the lines of minimum guarantee or fixed fee basis.
However, such partnerships do not result in any brand equity creation, nor user loyalty pertaining to a particular channel. Further, revenues in such models would be strictly dependent on the success of the content, which is a bit of an unknown.
Telco partnerships: As a result of the rapid data uptake over the last three to four quarters, coupled with commoditisation and falling revenues on voice, content has become extremely important for telecom service providers to engage with and retain their customer base.
While operators such as Reliance Jio have some captive content (as a result of its stake in Network 18), others are trying to build out their content library through partnerships with other VOD platforms and content producers.
Such partnerships allow platforms and creators to access the 400+ million wireless internet user base, with minimal costs to acquire that traffic organically. The revenue models usually followed are a combination of advertisement based revenues, with a potential fixed fee component. While the content discoverability on a telco platform could be better than a YouTube, a plethora of competing content would make brand recognition and user stickiness difficult in the long run.
Netflix in India intends to partner with Airtel, Vodafone and d2h (DTH platform), while Hotstar allows JioPlay users to access its premium content at zero cost. Amazon India is reaching out to customers through multiple avenues of distribution like cab aggregators for in-car entertainment (Ola), fixed broadband providers for VOD services along with telco partnerships (Vodafone).
Monetisation models: The rapid growth of OTT consumption in India has seen the platforms continually evaluate the monetisation models adopted by them. The Indian market is characterised by four major monetisation models—advertisement based (AVOD), subscription based (SVOD), freemium being a mix of AVOD and SVOD; and sponsored content which could co-exist with any of the other three models.
Advertisement-based (AVOD) models: The advertisement based (AVOD) model essentially aims at monetising the traffic/impressions on a particular video by showcasing advertisements, which may be in the form of video or text. One of the most viewed video on demand platforms in India, YouTube, is based on the AVOD model.
The AVOD model has also been adopted by some broadcaster backed platforms in India, owing to their in-house library that forms the bulk of content available on the platforms. VOOT and OZEE currently depend on advertising for revenue realisations from their platforms. For small content producers, the AVOD model helps them realise revenues without any investments in the underlying platform.
However, given the costs associated with original content that most platforms are gravitating towards, AVOD models may not even lead to a breakeven on every video. As an illustration, assuming a CPM of $1.5–2.5 with YouTube’s share at 50%, and cost of producing an original, ‘for-digital’ episode of 23–25 minutes at around Rs 1.5 million, the video would need to touch more than 20 million paid views for the content producer to achieve a breakeven.
Further, the lack of third party digital measurement makes the ROI visibility for a campaign challenging.
Subscription-based (SVOD) models: The SVOD models have traditionally been deployed by global platforms such as Netflix and Amazon Prime Video, owing to their original content strategy right from the outset. The model has seen tremendous success, especially in markets such as the US, where OTT platforms emerged as alternatives to television, rather than the complimentary presence in India.
Unlike global markets, India has a robust cable TV landscape, with a wide array of channels available for Rs 100 and above, and in some cases, free of cost through the DD FreeDish platform, which makes the SVOD play challenging for operators. However, an SVOD play is essential for long-term sustenance of a platform, one which is especially focussed on original content.
Netflix has seen some traction on its SVOD platform in India, with the focus only upwardly mobile, English language speaking subscribers. The platform is estimated to have around 200,000 subscribers, up from 50,000–70,000 a year ago. Other operators such as Balaji Telefilms and Sun NXT have also gone the SVOD way through their own platforms.
Freemium models: These are a mix of AVOD and SVOD, with a strategy around fostering customer engagement on a platform through a critical mass of library content and eventually looking to convert customers to a pay model through original programming. The model is useful from the point of view of recovering a portion of operational costs through advertisement based monetisation from the library content, with subscriptions helping the platform turn profitable in the long run. The leading OTT platform, Hotstar, follows the Freemium model, with television dramas and serials largely available for free, while latest movies, live sports and global series such as Game of Thrones etc. are available for a monthly subscription.
Sponsorships: Content producers are also realising the benefits of branded/sponsored content, which is emerging as an effective means of monetisation. The same helps in partially recovering the content production costs, while the advertiser benefit by having the brand message baked into the content, without the risk of losing customer attention due to intrusive advertising.
Arre follows the sponsored content model for some of its content, and has roped in sponsors series like Gillette sponsoring ‘A.I.S.H.A’; while TVF’s (The Viral Fever) ‘Permanent Roommates’ had Ola Cabs as the anchor sponsor.
Digital measurements and piracy as challenges: The digital medium, by the inherent virtue of its addressability in terms of the user accessing it, is built towards targeted customer advertising. However, the industry at large is facing a significant challenge in terms of consistency amongst measurement metrics and third-party validation of the viewer data.
Major global advertisers have expressed concerns around the same, citing an inability to arrive at a measureable ROI from digital advertising. In January 2017, Procter and Gamble (P&G) cut its digital advertising spends by $140 million, due to concerns around brand safety and ineffectiveness arising from the digital campaigns.
The large global networks like Facebook and Google are actively engaging with the Media Rating Council (MRC) to undergo audits and work around defined standards for viewability and engagement. In August 2017, GroupM rolled out their global viewability standards that streamlined the way video ads are measured.
In India, currently no third party digital standards exist for validating ad measurement. However, BARC India has teamed up with Nielsen to launch an integrated advertisement measurement systems across TV and Digital under the brand name ‘EKAM’ around the last quarter of CY’1753.
Digital advertisement fraud: Fraudulent clicks on digital advertisements is one of the major challenges being faced by players globally, with such ‘malvertising’ estimated to cost marketers 16.4 billion. India is worse off with mobile advertising click fraud 2.4x higher than the global benchmarks, and stands at around 31%.
Google reported issuing refunds to hundreds of advertisers in August 2017, after detecting a large amount of bot generated fraudulent traffic. Although the refunds were around 7–10% of the monies spent by these brands, the same was intended to build long-term trust with advertisers. However, smaller platforms are currently not technologically equipped to handle the bot behaviour. The need of the hour for the industry is to come together as one body, and implement consistent technology across digital platforms to ensure sustained growth.
Brand safety: The concept of brand safety is still at a nascent stage in India. However, with growing consumption on digital media, the concept will be one of the critical challenges to tackle going ahead.
Platforms like Google are globally trying to address this issue through effective filtering basis the brand guidelines. YouTube has put measure in place to ensure no advertisements are served around ‘hate speeches’. In India, organisations are coming up with algorithms which monitor content across digital platforms before letting an ad being served next to content.
Digital piracy: Digital piracy is quickly becoming a serious threat to the OTT platforms, especially SVOD based models as it provides viewers with free alternatives to otherwise paid content with no loss in experience or quality. Moreover, due to the current unregulated nature of OTT content, piracy has emerged as a real concern for the industry players.
Easy access and universal reach of the digital world allows individuals to set up peer-to-peer (P2P) sharing networks, generating a multitude of links to the same content and in effect, distributing it to the masses for free.
These individuals, in turn, earn revenues through advertisements on their websites-more footfall leads to more clicks. The shutting down of some of these torrent websites has proven to be ineffective as with the closure of one, many more emerge, as has been the case with sites such as KAT, Pirate Bay, Rapidshare, Megaupload, etc.
‘Game of Thrones’, one of the world’s most avidly watched shows, is considered to be the most pirated content globally, with many leakages dotting its season-to-season history. Star TV’s Hotstar, responsible for broadcasting the show in India famously spearheaded a campaign ‘Torrents Morghulis’ after recent piracy incidents with the show.
Across mediums, piracy not only damages revenues and market shares, but also deters content creators from investing in new content, and thus the impact can be severe on SVOD platforms.
Industry initiatives to curb the menace: Stakeholders in the OTT value chain need to ensure 360-degree approach to security and anti-piracy to prevent loss or leakage of original or acquired content.
Although the illegal distribution of pirated content is punishable under the Indian Copyright Act 1957, the same along with the Information Technology (IT) Act and The Cinematograph Act, 1952, need to be updated taking into account the mass proliferation of digital videos.
In June 2017, global content creators and on-demand platforms launched an industry coalition called Alliance for Creativity and Entertainment (ACE), with memberships from the likes of Amazon, Netflix, BBC Worldwide, Sony Pictures Networks, Star India, Warner Bros etc. to protect and foster the market for legal content.
Closer home, a step in the right direction was taken with the Internet and Mobile Association of India (IAMAI) constituting a working group to safeguard the interest of the digital entertainment businesses. The committee consists of key stakeholders from large M&E players such as Hotstar, HOOQ, Sony, Star Plus, Digivive, Radio Mirchi, Shemaroo, Viacom18, Netflix, Arre, Eros, among others. The group aims at fighting online piracy and establishing best practices for the digital content industry.
Industry bodies such as Motion Pictures Association of America –India arm (MPAA India) and Federation of Indian Chambers of Commerce and Industry’s (FICCI) media arm, have been actively engaging with the government to fight online piracy. Focused units such as MIPCU (Maharashtra Intellectual Property and Crime Unit) and Copyright Force (a joint initiative of Telangana Intellectual Property and Crime unit and MPAA India) are mandated to exclusively work towards curbing the online growing piracy menace in the years to come.
Scale and economics for OTT platforms: The year 2016 saw OTT platforms proliferate with the video on demand segment in its infancy. However, with increasing maturity around distribution and content strategies by stakeholders in the industry, the segment has reached a stage where current decisions will have a significant impact on which platforms survive the VOD race in the long-run.
The key indicators for some platforms today are not around profitability margins, but more around the critical mass of customers on the platform and their resultant engagement, while for others, building a profitable business from the outset defines their long-term vision.
While the customer engagement focused platforms are likely to see rapid growth in terms of active users and time spent on the platform, the traffic/customer acquisition costs and investments in content would imply a long gestation period before profitability kicks in. Such platforms, however, may have more leverage, when it comes to cashing in on the large potential that online video holds.
The above does not imply that a focus on profitability is a flawed strategy. Recovery of operations and content costs to build a long-term sustainable business is probably the most critical focus areas for media organisations. However, platforms would need to be cognisant of the benefits that customer loyalty and continuous engagement bring in, and the revenue potential that operations at scale can achieve.
Business that can delicately balance the above considerations, along with compelling and discoverable content would eventually be the likeliest winners.
Digital is the new normal and requires a fundamental mind shift: With online video consumption gaining traction and becoming ‘mass’, traditional value chains and business models are facing widespread disruption. Players across the value chain are exploring the digital universe with some players embracing the shift while the others are still testing the waters.
Major operators in the OTT domain in India are traditional companies ranging from broadcast networks, telcos and content producers. However, operating and business models in the digital environment is very different to what traditional businesses are used to with continuously evolving technology, unclear business models, customer experience centric approach, evolving consumption patterns and rapid response time.
As a result, organisations need to be flexible, nimble and develop strategies to predict, influence and respond to customer behaviour to be able to optimise the digital opportunity and combat ever evolving challenges. This requires organisations to modify their DNA from their business and operating strategy to internal structures, processes and also the way employees think and perform their jobs across the front, middle and back offices.
Digital transformational journey requires a digital-first mind-set: The road to digital transformation is an ongoing journey with iterative processes and evolving goal posts. However, the transformation process can be categorised into four broad phases, i.e. defining a digital vision and strategy, building customer proposition, developing business design and planning execution.