Can revenue sustain the OTT and SVOD businesses?

Shivani Srivastava
Consultant - Marketing PR & Corp Comm. at MoMAGIC

The urban market is increasingly getting glued to over-the-top (OTT) TV and video and subscription-based video on demand (SVOD) platforms. This may not indicate the demise of the good old television but it is a stiff competition nevertheless. In India, the revenue in the video streaming (SVOD) segment was nearly USD 194 million in 2019, which is expected to grow at a rate of 11.4 per cent till 2024, ushering the market volume to USD 333million. The segment had a user penetration of 3.9 per cent in 2019 which is likely to increase to 5.5 per cent during the same time. However, the lucrative possibilities of the market are attracting new players quite often, including big names such as Apple. The average revenue per user (ARPU) in India for these platforms is currently about USD 3.66 for SVOD, and the usage share of Amazon Prime Video was an estimated 20 per cent in 2018.

The game of costs

Though the numbers of users for OTT and SVOD platforms are likely to rise to 78.2m by 2024, the newer competitors may eat into the revenue of the existing players. This can pose a problem to these players who may already be battling rising content costs – according to the Financial Times, Apple is spending USD 6 billion on new TV shows and movies for its forthcoming service, TV+, whereas Amazon’s quarterly filing states they have spent USD 1.7 billion on video and music content, which translates to roughly USD 7 billion for the full year. In 2019, Netflix’s costs to buy, produce and license content will be USD 15 billion — up from USD 12 billion in 2018 while marketing costs for 2019 are pegged at USD 2.9 billion. The content cost is likely to rise as more A-listers of film and television may try their luck o these platforms and the inter-platform competition intensifies by creating quality content.

“According to the Financial Times, Apple is spending USD 6 billion on new TV shows and movies for its forthcoming service, TV+, whereas Amazon’s quarterly filing states they have spent USD 1.7 billion on video and music content, which translates to roughly USD 7 billion for the full year. In 2019, Netflix’s costs to buy, produce and license content will be USD 15 billion”

Is there a winning model?

The bigger question is, with this kind of revenue-cost ratio, can OTT and SVOD sustain in the longer-term? To ensure they get a steady stream of users, platforms are now collaborating with telecom service providers to reach their targeted users – almost all OTT platforms such as Hungama and Shemaroo have tie-ups with one or more telecom operator, while Netflix is available on Airtel and Amazon Prime is available both on Airtel and Vodafone-Idea. Zee5 has partnered with all the three telecom majors — Jio, Airtel and Vodafone-Idea and with Airtel, users can view about 30 per cent of the premium content on Airtel TV. Industry insiders deem such arrangement a ‘win-win for both’ as it helps platforms drive reach and surges in the AVOD (advertising video-on-demand) and SVOD (subscription video-on-demand) numbers, whereas telcos gain in terms of high average revenue per user (ARPU) through high data consumption. With India planning to roll out 5G services, such arrangements can provide a huge revenue boost.

“Almost all OTT platforms such as Hungama and Shemaroo have tie-ups with one or more telecom operator, while Netflix is available on Airtel and Amazon Prime is available both on Airtel and Vodafone-Idea. Zee5 has partnered with all the three telecom majors — Jio, Airtel and Vodafone-Idea and with Airtel, users can view about 30 per cent of the premium content on Airtel TV”

The untapped rural market can be a game-changer for these platforms – it is a huge minefield that is waiting to be explored. The hinderances are not only a less robust economy but also spotty reach of networks. A better digital infrastructure and a more affordable smartphone can help break the ice – according to a KPMG report, by 2020, half of India’s internet users are likely to be from rural parts.

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