An average household spends close to four hours watching the idiot box on a daily basis. TV reaches out to an estimated 836 million people across the country, while another 100 million people will succumb to its charms in the next five years. Going by these stats, any argument against TV will fall flat.
But, there’s always a but.
More and more people in India have started watching films and TV content over the internet. Known as OTT (over-the-top) services, this facility allows you to watch videos that you’d like to watch and at any point of time without subscribing to cable TV.
The convenience of watching shows and movies over the internet is slowly, but surely, changing the rules of the game. No longer is TV being viewed as the sole point of entertainment and information.
We believe the OTT market is rising substantially. At the moment, around 200-225 million people are watching content over the internet for an hour daily. That number is expected to swell in the next five years: close to 550 million people will access this services and spend about an hour and 40 minutes to watch video content online.
TV advertisements are still considered lucrative. Its reach and efficient pricing — as per cost-per-thousand views — give TV ads a leg-up over its digital counterpart.
TV’s hegemony may not last for long though. We expect digital advertising to surge by 43% for the next five years to $2.2 billion. That’s because its reach is expected to grow manifold during the period.
If you look at the growth between March 2016 and August 2018 alone, an additional 175 million people have started using the internet, while 135 million more people have bought smartphones. Additionally, the cost of using the internet has tumbled dramatically in recent months.
All these factors indicate that watching videos online have become affordable and convenient to a larger section of our population. Keeping this in mind, we expect OTT to contribute one-fourth of overall video consumption in the next five years (it currently comprises 9%).
In short, more eyeballs would result in more ad revenues.
Given this background, it is not surprising that global OTT players like Netflix and Amazon Prime have stolen a march over their Indian counterparts.
They are particularly strong in two aspects: technology and capital. The global players have an expertise in providing user-friendly apps — for example, multi-lingual support and better search engine — and have deep pockets to gain market share in India.
The muscle power can be borne by the fact that Amazon Prime has bought the rights for more than half of top-25 Hindi films in the last 12 months. It also offers a very affordable subscription rate because a Hindi film-watcher wouldn’t mind paying Rs 129 every month to watch some of the best films in recent times.
The subscription model may not be a success in India. That can be attributed to Indians being price-sensitive and their inability to pay for content. But that hasn’t deterred the global players yet because the subscriber base overseas is indirectly paying for select Indian content.
High global revenue through the subscription model has also enabled companies like Netflix and Amazon Prime to produce more shows annually.
The disruption in viewing habits has prompted the local players to up the challenge brought forth by Netflix and Amazon Prime.
Let’s look at Hotstar first. The company’s feather in the cap is live streaming of sporting events like the IPL. But it seems like they are planning to expand further. The appointment of a new head of original entertainment content production suggests that they may start producing entertainment shows too. Given the company is backed by Disney, they seem the best-placed among all local players to take on Netflix and Amazon Prime.
It is also important to note that the company has a huge head-start when it comes to its subscription base in India — they are estimated have about 150 million subscribers as against 2-3 million for Netflix.
As for Reliance-backed Jio, they have picked up stakes in Balaji Telefilms, Eros International and Viacom. Given the scale it is operating in, it won’t be surprising if they pump in Rs 12-15 billion to create OTT originals in the next 24 months.
Meanwhile, ZEE has the potential to succeed but it may have to partner with regional players to strike gold. It must be mentioned that ZEE already has a start due to its reach and enviable regional content.
There are risks involved for incumbent TV broadcasters like ZEE, Star and Viacom. That’s because production of OTT content is more costly than TV shows. On average, the cost of production per hour is 30-50% higher than TV soaps.
On the other hand, given Netflix’s revenue model, we feel that they can make 20 shows of 10 hours every year at a budget that would be four times higher than local players like ZEE, Alt Balaji and Eros Now.
Traditional broadcasters will also need to be mindful about the changing landscape. They can’t afford to lose market share and mind share to next-gen media companies. If they fail to evolve in the digital space, their premium valuations in the stock market can take a hit, just like it happened with US broadcasters.
In short, the digital tsunami is real and coming to get a fair chunk of TV viewership. Those broadcasters unable to successfully transition in the digital eco-system would fall by the wayside.
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