As Indian consumers find themselves in a technologically converged digital world, it is clear that legacy content will not satiate the growing appetite for niche and differentiated content
On January, Netflix reportedly streamed more than 250 million hours of content to its subscribers across the world on a single day. To put things in perspective, that is about 29,000 years of content delivered in just 24 hours. Video on demand on the Internet has rapidly ushered in a new paradigm in the way content is being consumed.
Video on demand providers can amass audiences wherever there is broadband and can carry a wide range of content catering to niche and plural viewing tastes. Illustratively, Breaking Bad, an American television series, missed the linear broadcast twice in the UK but was such a big success when delivered on Netflix that it bagged the British Academy Film Awards award the following year.
With Internet usage via mobile phones set to double in the next five years, and mobile video traffic to grow nearly 12 times over the same period in India, video on demand is set to penetrate further into the daily lives of citizens, opening up new avenues for monetisation of video content. By 2018, video is expected to drive 72 per cent of all Internet traffic in India, up from 45 per cent in 2013.
The central question, however, is: Can Indian content creators monetise their works using the video on demand model and compete with global companies in this space? With the digital medium now seen as a potential core revenue generator, traditional media and entertainment organisations, particularly broadcasters, are all busy investing in some aspect of this new market. However, the Indian market poses four fundamental challenges.
First, from empirical evidence, India has a very low free-to-paid conversion rate. According to a report by an internationally recognised market research and consulting company, Parks Associates, 32 per cent of those who experiment with free over-the-top (OTT) video trials, such as on Netflix, Amazon Prime or Hulu, subsequently sign up for paid subscriptions in the US. In stark contrast, in 2016, there were about 66 million uniquely connected video viewers in India, but only 1.3 million were paid monthly subscribers.
With the emergence of Reliance Jio’s data services, one can reasonably expect the numbers of free viewers to have expanded exponentially and for the conversion rate to have fallen to less than one per cent.
The challenge for Indian video on demand platforms, therefore, is to create a compelling content proposition at an attractive price point and at a reasonably good quality of service.
But in an ecosystem where a negligible user-base pays for content, underwriting and investing in high-quality content and technology is likely to be financially unviable without subsidisation in some form — either through venture capital or through content deals with traditional broadcasters.
The second challenge is temporal and relates to the evolving patterns of consumer behaviour. Juggernaut Books, a curated online bookshop, converts around eight to 10 per cent of its total users into paid subscribers every month, according to its promoter who spoke at the Create 4 India forum, in New Delhi recently.
Juggernaut’s conversion success is partly attributable to the fact that consumers of literary works are used to paying for books, stories on devices like Kindle and so on.
Even though online written content is ubiquitous and often free, well-curated libraries are not. However, in the context of video content, wherein consumers can access around 700 free-to-air channels on television, getting around to paying substantive amounts for video on demand may take longer.
Moreover, with limitation of television subscription market, by extant economic regulations in the broadcasting industry, inflection point, at which audiences will be encouraged to value good content, is elusive. This impacts the timelines in the digital world.
The third challenge is of sustainability of an advertising-led video on demand market. While revenues earned through digital advertising grew by over 28 per cent from 2015 to 2016, digital advertising accounted for only around 15 per cent of the total advertising pie for the Indian Media and Entertainment industry in 2016. Additionally, a large share of these revenues are going to a handful of large technology platforms that act as primary markets for digital advertising, with their large, captive consumer bases.
Video on demand platforms on the other hand can only charge a fraction of the rates that television channels can charge for placing advertisements. Therefore, the dependence of video on demand platforms on their brick and mortar cousins (the broadcasters), for cross-subsiding content costs, is still very high.
The fourth challenge is one of perceptions and it relates to Government scepticism of the subscription model. Officials often wonder whether in an unfettered television market, broadcasters will exploit consumers or actually invest in better content. However, investments into content in the global video on demand market should be a leading indicator to go by.
The reason why Netflix had to set aside a production budget of six billion dollars for 2016, and Apple has announced a one billion dollars, annual-spend on content this week, is that they have gauged the demand for quality content among audiences globally.
Investing into better content is not optional in a competitive global market. And global quality content comes at a price. A 50-minute episode of the latest season of Game of Thrones is produced at a budget of $10 million. Until Government recognises these basic dynamics of content markets, the Indian video on demand market will remain indirectly throttled and uncompetitive.
As Indian consumers find themselves in a technologically converged digital world, where video is available on multiple devices and not just television, it is clear that legacy content will not satiate the growing appetite for niche and differentiated content.
There are only so many saas bahu re-runs that the Indian consumer can be expected to watch. The challenge for indigenous video on demand platforms is to effectively tap a growing domestic market, and compete with global peers. And their success is critically dependent on a wider recognition of the legacy of sectoral and regulatory challenges in the brick and mortar world, and their applicability to the digital world.
(Vivan Sharan is Partner, and Yash Bajaj is Programme Associate, Koan Advisory Group, New Delhi)