LONG READ: India braces for VOD revolution

India is on the brink of a streaming revolution, with international players including Netflix and Amazon joining a host of local platforms, but can anyone make money in this complex and crowded market?

On September 5, India entered a new stage in its digital evolution with the launch of Reliance Jio, a 4G mobile internet service that bundles calls, data and video content in one of the cheapest packages that Indian consumers have ever seen.

Launched by Mukesh Ambani (brother of Amblin Partners backer Anil Ambani) with investment of $22bn, the new service promises to bring affordable data plans and a wide range of content – including movies, music, catch-up TV and live sports – to a mass audience in a market that has been lagging behind in the streaming revolution due to its slow internet speeds.

Speaking at the FICCI Frames conference in Mumbai in March, Ambani observed that India ranks 150 out of 230 countries in terms of mobile internet connectivity. “We have a responsibility to digitally empower India. To end this digital poverty,” Ambani said in a rousing speech. “1.3 billion Indians cannot be left behind as the world enters a new era.”

Of course, Ambani is not the only person attempting to end India’s digital poverty. Prime Minister Narendra Modi’s Digital India campaign aims to increase broadband and mobile connectivity across the country, including rural areas, while Jio’s telco rivals Airtel, Vodafone and Idea are also rolling out 4G services and exploring content offerings.

As a result, the country’s digital infrastructure is slowly improving, but as most Indians are accessing the internet through low-cost smartphones rather than computers, the future of streaming is likely to be mobile. By 2020, India will have 825m internet users, compared to 330m in 2015, according to the annual KPMG-FICCI report, but more than 790m of those connections will be wireless. As most users will be glued to smaller screens, rather than smart TVs in the living room, this will influence the kind of content they consume.

STREAMING GIANTS

It’s into this evolving but complex landscape that both Netflix and Amazon Prime Video are plunging headfirst this year. Netflix made its Indian debut in January, as part of a rollout in 130 countries, and has been buying up Bollywood films and indie content, including Q’s Sundance title Brahman Naman. It is also producing a TV series adapted from Vikram Chandra’s novel Sacred Games with Mumbai-based Phantom Films, and recently hired Indian producer Swati Shetty to oversee production and acquisition of original content, based out of LA.

Meanwhile, Amazon recently announced a slew of licensing deals with Bollywood producers Dharma Productions and T-Series, the Hyderabad-based creators of the Baahubali franchise, Arka Mediaworks, and kids content producers Green Gold Animation, ahead of the launch of Amazon Prime Video, expected in November.

The deal with Karan Johar’s Dharma covers library titles and news films such as Ae Dil Hai Mushkil, starring Aishwarya Rai Bachchan and Ranbir Kapoor, while the T-Series deal includes 17 new titles from hot directors such as Anubhva Sinha and Hansal Mehta, and also featuring a host of Bollywood stars. As always with Amazon, video streaming is only part of the picture – it’s already one of India’s biggest e-commerce operators and launched Amazon Prime, minus the video component, in 100 Indian cities in July.

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With its huge population and appetite for entertainment, India seems an obvious target for the US streaming giants, but they are by no means entering a clear field. The past few years has seen a rapid proliferation of VOD platforms in India, launched by local, US and Asian companies, undeterred by the market’s many complexities – from slow internet speeds and high levels of piracy, to creaky online payment systems and the apparent unwillingness of Indian audiences to pay for content online.

Some of these platforms are VOD start-ups (Spuul, YuppTV, Viu and HOOQ), while others have been launched by Bollywood studios (Eros International’s ErosNow and Reliance Entertainment’s BigFlix). All the major Indian broadcasters have now launched OTT services (Star’s Hotstar, Sony’s LIV, Viacom18’s VOOT and Zee Entertainment’s Ditto and Ozee) and Chinese tech giants Alibaba and LeEco are also eyeing the market.

“People have different agendas for entering this space – for some its about stock market valuation while others are hoping to eat into the ad dollars that are currently going to Google,” says Ashish Patil, head of Yash Raj Films’ Y-Films, which operates one of India’s most popular YouTube channels. “The networks are giving a lot of their content to YouTube, where they’re only getting 35-40% of ad revenue, so they thought why not create our own platform. But that costs a chunk of money, even if you already own the content.”

BREAKING WINDOWS

Google’s YouTube platform is already a dominant player in India’s online video market – its total viewing time grew by 80% over the past year – and Indian audiences are not just watching cat videos. “We have thousands of movies on YouTube and they’re being played every day,” says YouTube India head of content operations Satya Raghavan. Earlier this year, Yash Raj Films released Shah Rukh Khan’s latest blockbuster Fan through YouTube’s rental service, Google Play, and other TVOD platforms, six weeks after its theatrical release and three months before it played on satellite TV.

Other studios are experimenting with windows – Fox Star Studios streamed Anurag Kashyap’s Bombay Velvet on its affiliate AVOD platform Hotstar before it played on satellite, and Eros has streamed several films on ErosNow before satellite. Amazon has scored a major coup with the T-Series titles, which it will stream a few weeks after theatrical release and ahead of their TV premiere. India’s satellite broadcasters are powerful and tend to buy out ancillary rights to Indian movies on a global basis. But according to KPMG-FICCI: “For films, digital rights are currently sold bundled with the TV rights – however digital is expected to soon emerge as an independent revenue stream.”

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CONVERTING TO PAY

While films like Fan suggest a TVOD window is opening, the SVOD model has been slower to take off in India. Most local platforms rely on advertising revenue and are fighting over a relatively small pie, most of which has already been eaten by Google. According to KPMG-FICCI, online video advertising was only worth $179m in 2015, although it’s estimated to grow to around $1bn by 2020. Streaming platforms have been experimenting with pay models, including the hybrid “freemium” concept, but as in neighbouring China, it’s a struggle getting audiences to pay.

The industry discussed this problem at length at a FICCI Knowledge Series forum in Mumbai in July, where speakers outlined a whole series of issues, including the fact that Indian consumers already pay high rates for mobile data so feel they shouldn’t have to pay extra for content. They’ve also had years of access to free content online, both legal and pirated, along with some of the world’s cheapest packages for cable TV.

“The reason SVOD has grown so fast in the US is due to price arbitrage,” said VOOT head of marketing and partnerships Akash Banerji. “US cable networks charge $80-$100 for monthly packages, while in India you get access to a massive amount of channels, including movies and sports, for Rs200 [$3] a month.”

But nobody is waiting to see which business model works before entering the fray – almost all traditional media companies are already locked in a digital land grab. “Nobody has the answers, and it takes time and money to get into the SVOD space, but we just wanted to go there and build a subscriber base quickly,” said Ditto TV business head Archana Arnand, speaking at the FICCI forum. With so many players and so little revenue, a bloodbath, or at least a period of consolidation, is inevitable over the next few years.

OCCUPYING A NICHE

If the new landscape is challenging for local companies, foreign entrants like Netflix and Amazon face an even tougher job, as they don’t have the same volume of Indian-language content across multiple genres and languages. They’ll also find it difficult to compete on price. Netflix monthly subscriptions are priced at $7.5-$12 (Rs500-Rs800) in India, compared to ErosNow’s basic premium ad-free tier for $0.75 (Rs50) a month.

Netflix has not released subscription figures for India, but they’re thought to be lower than expected, especially as the streaming giant missed its target on international subs in the second quarter of 2016. Even if they pick up, foreign streamers are likely to occupy a niche in the Indian market – targeting an upscale, English-speaking demographic in the major cities.

However, in a market with a population of 1.3 billion, an affluent niche may be all you need. The local industry is hoping that the aggressive acquisitions and marketing strategy of Amazon and Netflix will convince middle-class consumers to embrace SVOD, a rising tide that could lift all boats.

YouTube’s Raghavan says that although it’s difficult to get paid services off the ground in India, the growth of e-commerce suggests the potential. “Indians have only learned to pay online in the last few years and yet there’s already an e-commerce revolution happening. Around 75 million people have used e-commerce platforms in India, which is not negligible,” Raghavan says.

India will also continue to draw foreign players simply because it’s a potentially huge market that is open to outsiders. Although China has better internet and online payment infrastructure, foreign VOD platforms are not allowed to enter the market, and since streaming quotas were introduced in April 2015, the volume of foreign content on Chinese streaming sites has been substantially reduced. China has also banned foreign tech giants such as Google and Facebook, which are already deeply entrenched in India.

The question now is how big the spoils will eventually grow in India and which victor will take them – global tech titans, SVOD players, local content owners or plucky start-ups. And with Amazon entering the market so aggressively, will Netflix be forced to change course? At present, as Indians turn en masse to their mobile phones for entertainment, everything is still up for grabs.