A decade and a half since its liberalization, it seems that consolidation in the telecom industry is now imminent. Reliance Jio Infocomm Ltd’s emergence has created 100 million new broadband consumers and the consequent growth in internet penetration is without precedent. India has nearly 300 million broadband consumers, and consumption of online content has driven a large share of this growth. Illustratively, a Cisco report suggests that video traffic will contribute to around 65% of all internet traffic in India by the next year. Around 70 billion minutes of video content will be viewed across the country per month. The critical question, therefore, is whether India’s content creators and owners—including empowered youth with easy access to high-quality imaging devices and broadcasters with access to a unified mode of distribution through broadband networks—will benefit from the disintermediation of legacy distribution networks.
Two aspects must be considered.
First, content industries may have to adjust to the unique demands of the Indian market even as their own distribution channels evolve. Other industries have also had to do this in the past—and only those who adapt, survive. A well-known example from the fast-moving consumer goods industry is that of Chik India Co., a small business which began supplying one rupee “CavinKare” sachets to rural areas in the early 1980s—and completely changed all assumptions about the shampoo business. Big brands had to follow suit, to replicate CavinKare’s success. The telecom industry has also adjusted to Indian realities by offering prepaid packs for as little as Rs10. As a result, the aspirational broadband consumer has taken to browsing the internet on her smartphone and watching videos on small value prepaid packs. This “sachetization” of content places its own set of pressures on the content ecosystem.
Second, the dynamism of consumer preferences is nearly impossible to pre-empt. For instance, when Parliament mandated the digitization of cable TV, many thought that the cost of procuring set-top boxes would lead to attrition in the TV market. Not so. A city-based survey by Jamia Millia Islamia showed that even households at the bottom of the income pyramid decided to “reduce their expenditure on other media, like newspapers, in order to afford the increase in cable rents following the digital switchover”. Consumers will ultimately decide if they want to pay for curated content without ad breaks.
Rapid digitalization has led to much exuberance in the online video market on the industry side—with nearly all large upstream broadcasters investing in online video platforms and betting on dynamic consumer preferences. However, digital advertising accounts for only around 15% of the total advertising pie and the high-end subscription market is yet to achieve scale. Indian content creators and owners will have to find the risk appetite to invest in high-quality, differentiated content to survive in an advertising-led market that has been captured by large technology companies.
To survive the technology-led disruptions that are shaping their markets, content creators and owners will have to strike two bargains. The first should be with telecom networks that “carry” content to the consumer. Jio has upset the profitability metrics of the telecom industry. The industry’s ability to recover to sustainable levels of average revenue per user is a matter of conjecture, but what is certain is that telecom businesses need content businesses to enhance their value proposition. And conversely, content businesses will need to increasingly rely on network innovations, particularly at the last mile, to bring content closer to the consumer (diluting the need for sachetization). The telecom industry should encourage the localization of the content ecosystem through content delivery networks, both to solve congestion issues for their own networks as well as to help monetize content.
The second bargain will not be as easy. The telecom regulator, which has also been regulating “broadcasting services” since 2004, indulges in economic regulation through which it circumscribes the commercial interaction between content owners and “carriage” operators that take broadcast signals to households. All international jurisdictions with advanced copyright frameworks akin to India’s, distinguish between “content” and “carriage”. Content which is sourced from an open market must not be priced by government. India’s exceptional and non-nuanced treatment of content and carriage dilutes the basic rights of content creators and owners. It also harms the consumer in doing so by throttling the ability of established content industries to invest in high-quality programming or into new over-the-top services, due to straight-jacketed revenue.
Content creators and owners must demand their right to price content as per market forces and through the extant copyright framework, which provides a complete code to do so. With a hyper-competitive TV market (nearly 1,000 channels available pan India), and stiff competition from large technology companies online, they currently have little room to manoeuvre.
So, the real bargain should now be struck between different content owners, who must unite against an idiosyncratic regulatory framework which limits this country’s creative potential, pre-empts consumer choice, and poses an existential threat to the business of creativity.
Vivan Sharan is a partner at Koan Advisory Group, New Delhi.