Streaming businesses need ads to scale: Jehil Thakkar, Deloitte

India’s streaming market is one where the action simply doesn't seem to stop. The most recent news of Amazon Prime Video buying Times Internet-backed MX Player has once again put the spotlight on what it takes to be a profitable streaming platform in a price-sensitive, advertising-tolerant country like India. And, will people beyond the metro cities even pay to watch content on streaming platforms?

JioCinema’s big watch-IPL-for-free bet does suggest that free content subsidised by advertising is the key to unlocking scale and rapid growth in India. 

Streaming became ubiquitous and addictive largely thanks to cheap data prices. Data prices dropped from about Rs 250 per GB in 2014 to Rs 10-15 per GB in 2020. The average monthly wireless data consumption per user reached 16.4 GB in 2022. And, Deloitte predicts that this figure is likely to triple to 54 GB per month by 2028. 

Ubiquity notwithstanding, the Indian consumer is still reluctant to pay for content.

“Beyond the top 50 million people, payment remains a big challenge,” says Jehil Thakkar, partner, Deloitte India. This explains why Amazon launched miniTV on its e-commerce platform and is in talks to buy MX Player.  

Ads all the way

OTT platforms will need to adopt hybrid monetisation models to win in India’s fragmented market. “Subscription-only OTTs will struggle to get scale beyond a point,” Thakkar prophecies. 

In 2022, India’s Internet subscriber base declined by 0.5 million, according to the Telecom Regulatory Authority of India’s (TRAI) annual report. Further, increasing cost of entry-level smartphones is slowing down the growth of this market.

According to IDC, smartphone shipments declined 10% YoY in 2022. In the same year, the average selling price of smartphones rose 18% to $224. As a result, overall Internet penetration in India is flatlining, says Thakkar.

In such a scenario, “platforms will add paying subscribers in the range of 2-3 million users annually, but to achieve scale, they will need to go advertising-based video on demand (AVoD).”

Freemium OTT platforms have already moved to ad-lite subscription. For instance, no matter how much a subscriber pays to watch content on Sony LIV, the viewer can't escape ads in live sports, catch-up TV and reality TV shows. And, Disney+ Hotstar’s premium subscription tier comes with ads on live content.   

Streaming platforms in India went through a phase of hiking subscription fees and adding multiple tiers to cater to a wide range of consumers. Sony LIV top tier subscription plan will set a viewer back by Rs 999 per year. Both Disney+ Hotstar and Amazon Prime Video became dearer by about Rs 500, and now subscriptions for these two platforms cost Rs 899-1,499 for a year. And, MX Player introduced a reasonably priced premium subscription at Rs 499.

 Yet, average revenue per user (ARPU) remains low. 

The struggle to grow ARPUs

OTT platforms have been able to increase ARPUs by increasing subscription fee. “But the rate at which ARPUs are growing is lower than the inflation rate. A lot will also depend on data tariffs. When data prices begin to pinch the price-sensitive viewer, we may once again see the return of side-loading content, rampant piracy, etc.,” mentions Thakkar.

As per industry estimates, video streaming platforms in India manage to make about $7 per user, while internationally, Hulu has set the benchmark at $13 per SVoD user. Increasing ARPUs is going to be a herculean task for streaming platforms in India just because of the number of digital avenues marketers have today. 

A keen observer of India’s media landscape, Thakkar says, “While advertisers are warming up to spending on OTT platforms, the challenge for AVoD streaming platforms is that they're competing with all digital platforms - right from Instagram and Twitter to gaming platforms and Google. The reality is that OTT platforms aren't competing against each other for ad dollars, but with all other digital platforms where a user spends their leisure time.”

According to Deloitte’s latest TMT report, AVoD OTT revenue growth rate has been on an upward trajectory. The growth rate has almost doubled from 15% in 2017 to 28% in 2021.

However, AVoD revenue growth rate has remained stagnant at about 19-21% since 2017. AVoD and SVoD revenue is split down the middle, with advertising bringing in $1.15 billion and subscriptions contributing $1.2 billion.

Content investments 

The report states that smaller regional platforms typically invest $0.4-0.5 million per season on content, whereas larger multi-national players invest $5-7 million in marquee shows. In total, OTT platforms in India invested roughly $500 million in original content in 2021. But here’s the clincher: even as investments in content production increase, ARPUs remain low.

Now, ARPU pressures and macro-economic headwinds are dictating how much money platforms can spend on content. “For the last decade, we have been in an era of easy money - interest rates were very low and the world was awash with capital. That translated to video streaming platforms spending liberally,” points out Thakkar.

In 2019, Reed Hastings, former CEO of Netflix, stated that the streaming platform would spend a whopping Rs 3,000 crore on content in India over a period of three years.

A media analyst says, “In fact, it's the content ecosystem that has been the biggest beneficiary during this boom period and not the platforms themselves. And now, winter is coming.”

“Video streaming platforms will be more watchful about the amount of money they spend on creating content. It is not something they can stop, because content is what will attract new users to platforms. The overall scale of OTT shows will be impacted.” 

Aggregators and bundling 

As per an Omdia report, over 50% of India’s 73 million SVoD subscriptions in 2021 were from OTT aggregators. In an interview with afaqs!, Avinash Mudaliar, co-founder and CEO, OTTplay, said that aggregators can add at least 20-30% of subscribers to the existing base of the streaming platforms.

While aggregation is making OTT discovery and distribution easier, the business is largely still concentrated with telecom operators.

“DTH players that have introduced bundling, own a small fraction of the aggregation market, with only premium subscribers using those services. It will be interesting to see if these wired players remain relevant when 5G becomes prevalent. The wired broadband ecosystem is ripe for cannibalisation,” shares Thakkar.