How Flipkart’s interest in Hotstar can reap dividends

Publish Date: September 18, 2018

Flipkart’s reported interest in buying a stake in Hotstar has intensified an already-heated online streaming market.

Flipkart, which was acquired by Walmart a few weeks back, has apparently held talks with Star India-owned Hotstar officials about a deal that could expand their footprint in the digital space.

The preliminary talks come at a time when streaming giants Netflix and Amazon have bet big on India’s burgeoning online video demand market.

What we know so far

A Mint report quoted three unnamed sources about Flipkart’s intention to buy a stake in Hotstar, the leading streaming player in India. The report states that the talks are at a nascent stage and may not fructify in future. The quantum of the buyout remains hazy as well.

Flipkart’s meeting with Hotstar underscores the retail giant’s intention to spread its wings in the digital content space. The success of Amazon Prime and Netflix has bolstered the company’s belief that the online digital market is ripe for entry.

The Flipkart brass has apparently spoken to three streaming players in India earlier this year, one of them being Netflix. They are keen to get into the content space but do not want to build a streaming platform from scratch.

Although the thought of a Flipkart-Hotstar deal remains premature, it is important to mention that both players launched a joint video advertisement platform as recently as July, 2018. Therefore, the partnership does suggest that there is at least a basic understanding between the two companies.

High market share

Flipkart’s desire to buy a stake in Hotstar is particularly interesting: Hotstar has 150 million subscribers, an incredible 70% of market share, a direct entry into the lucrative live sports business and a wide array of regional content. In contrast, Amazon Prime and Netflix barely have more than 4 million subscribers between themselves.

Let’s look at the huge subscriber base first. Flipkart can leverage Hotstar’s volume and huge market share to drive up their profitability and make a stamp in the digital space.

Strong regional content

Flipkart can also leverage Hotstar’s strong regional content to make its presence felt in the smaller centres. This is where both Amazon and Netflix take a beating: although they have started producing regional content (Breathe, Inside Edge and Sacred Games), over 60% of their content is in English. On the other hand, regional content remains the byword for entertainment in Indian households. An Ernst and Young report found that Indians spend 93% of the time watching Hindi or regional language content.

With the country’s internet infrastructure improving and price of data plans falling rapidly, data consumption has altered dramatically in rural and urban India. The overall broadband penetration is set to grow to 520 million users by 2020, of which around 50-55% will come from tier-1, tier-2 towns and rural centers. The current wave of data use from rural centers means that the demand for vernacular content will grow even further.

ALTBalaji’s 2.5 million-strong subscriber base is another example why regional content is important in India. Launched by Ekta Kapoor a year back, she has piggybacked on the strength of strong regional content to stake out a considerable portion of the streaming market share. The subscriber number is particularly strong if you compare that of Amazon Prime and Netflix.

Live sports

Hotstar also has a wide bouquet of sporting events. Sports, especially cricket, is crucial in roping in new customers in India. For example, this year’s IPL final garnered 10.3 million eyeballs for the streaming giant. The sheer number helped Hotstar to add to its subscriber base. This is another area where they steal a march over their competitors.

Therefore, if a deal does go through, Flipkart can be confident of Hotstar’s subscriber numbers growing in future, thanks to the latter’s live-streaming prowess. Amazon UK had forayed into the live-streaming business by winning rights for the US Open this year. But there was a strong backlash from customers who complained of the streaming giant’s capability of live-streaming sports events.

Price sensitive

The Flipkart-Hotstar talks come at a time when subscription fees for Amazon Prime are at an all-time high (Netflix at a base price of Rs 499 per month was always considered pricey by Indians). The subscription prices have gone up as both Amazon Prime and Netflix have planned to launch multi-crore ad blitz in India.

On the other hand, since Star India, who own Hotstar, has a plethora of regional, sports and English TV channels and reaches out to about 720 million viewers across India, kickstarting an ad campaign for Hotstar is not much of a problem. Plus, Hotstar provides nearly 80% of its catalog for free of cost.

In short, Flipkart can use Hotstar’s unparalleled reach and nous for its own gains.

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