Week May 02- May 05, 2017

Rise of online video streaming in India

Entertainment offtake in India is undergoing a sea change from the prevalent scene of the last couple of decades. From the family ritual of watching TV together, video content consumption today thrives on binge watching “anytime, anywhere” and with a specific taste approach. Over the top (OTT) video consumption is simply a technology alternative that allows the replication of traditional home entertainment in a digital context, which can be consumed either on fixed broadband or mobile internet.

With the adoption of internet and taking cues from global video OTT giants like Netflix, Amazon Prime, Hulu, etc, India is also witnessing its own OTT revolution with player like Hotstar, Voot, TVF Play, Alt, Arre, etc, that have now offered to India “differentiated content” available at the convenience of the audience. Not only that, global biggies like Netflix and Amazon Prime Video have also entered the Indian video OTT space by launching their services. It would be interesting to watch how the new wave of video OTT alters the traditional habit of TV watching.

Video content consumption – OTT offers shift from traditional media

The structure of video entertainment consumption can be broadly categorised into in home and out of home. While out of home video consumption has traditionally been at cinema theatres, TV was the primary mode of video consumption at home. However, with the internet and, more so, the mobile internet, consumption of out of home and at home has been blurred to “anytime, anywhere approach”. This has given rise to OTT.

The OTT market is better defined by the following three types of players: advertisement based (AVOD), subscription based (SVOD) and transaction supported.

Advertisement video on demand (AVOD) services offer free online access to large libraries of movies, TV shows, original content and other professional/amateur content. As with traditional free to air services, the player aims to offset content cost as well as earn profits through advertisement revenues. These advertisement based services could either focus on original (digital first content) or re-run of TV based content (catch up TV) or a mix of both. Furthermore, the content can vary from professional (organised traditional content houses), amateurs (anybody can upload their content) and pro-am (which refers to niche category of content focusing only on the digital mode). YouTube is the biggest and best example of advertisement based OTT, which offers the biggest library of professional, amateurs and pro-am digital content. Similarly, Facebook also earns through advertisements on videos shared on its network.

Subscription video on demand (SVOD) services offer access to a library of content, which includes movies, TV shows, and other original content, for monthly/annual fees. SVOD services are usually distributed via streaming, which requires an active online connection. Netflix, Amazon Prime Video are examples of global SVOD players who are leaders in the space. Another form of SVOD is bundling and selling online a set of live and on demand services, and access to various TV channels shows (catch up TV) as is the case with US based Dish Network’s Sling TV.

Transaction based services: Content for these services is available to own or rent for a one-time fee. Video is streamed or downloaded and can be stored on the user’s own computer or mobile device and can be viewed anytime. Apple’s iTunes store and Amazon’s instant videos are among a few transaction based services.

Video content and distribution mode – Traditional vs. OTT

Source: ICICI Securities

Global OTT space – Few players take lion’s share

The global OTT space is pegged at US$25 billion in revenues. There are around 500 video OTT players, with most of them competing in their respective single markets. However, one must note that ~45% of global OTT revenues are generated by a handful of big US based (and with global reach) players such as YouTube, Facebook, Netflix, Amazon, HBO and Hulu. Therefore, these players do hold a strategic advantage in areas such as scale of content creation and technology. YouTube, by design (i.e. a huge library of user created and professional content) holds a major share in OTT revenues at ~16% driven mainly by advertisements. Similarly, Facebook, given its huge user base on its social network platforms, enjoys ~7% revenue market share in the total global OTT market of ~25 billion. On the other hand, Netflix, pioneer of SVOD enjoys a staggering 15% revenue market share driven by its subscription from a huge user base of 90+ million.

Global OTT revenue market share

Source: BCG, ICICI Securities

India – on the cusp of OTT usage breakout

OTT in India is a relatively newer concept with a sharp rise in launch and adoption since 2015. However, YouTube and catch up TV content players such as SonyLiv were already present in the market. YouTube, by far the largest OTT company in India (as in many other countries), continued to be the biggest driver for multi-screen (be it on a PC/laptop or mobile) viewership in India. One of the advantages of YouTube has been its evolution from a user-generated content provider to a professional content aggregator, which has stimulated OTT viewership behaviour.

The year 2015 saw the big bang launch of Hotstar, supported by multi-million dollar marketing and promotion blitzkrieg. This led international biggies such as Netflix and Amazon Prime Video to enter India in 2016 along with the big bang launch of Voot from the Viocom18 stable. As of 2016, there are over 30 OTT providers in India and over 80 million unique video OTT users in India, as per Frost and Sullivan. The current video based digital advertisement revenues in 2016 were at ~ Rs 1380 crore (~18% of overall digital advertisements) as per a Ficci KPMG report. Most OTT platforms are advertisement supported (while keeping some premium content available at a subscription known as Freemium) as they are testing the waters to build up the OTT watching habit in India. Global giants like Amazon and Netflix have entered the market on a subscription based model.

OTT platforms and their offerings in India

Source: ICICI Securities, FICCI KPMG Report

Content to be key for successful OTT

One of the key differentiating features of successful global OTT players like Netflix, YouTube or Amazon Prime has been their quality, volume and spending on the content library. To put into perspective, Netflix which has a global user base of 98 million, has a title library (movies and shows) of over 1 lakh. The company, which spent US$5 billion on content in 2016, has guided for content led spending of ~$6 billion in 2017. Similarly, Amazon Prime, which has 65+ million global users and a library of 41000 movies and shows has a content spending budget of ~US$4.5 billion in 2017. At the same time, the secret of YouTube’s success has been availability of huge content across genres.

Back home in India, the OTT platform has largely been launched by broadcasters such as Sony Pictures (Sony Liv), Star (Hotstar), Zee (Ozee/ditto TV) and Viacom-TV18 (Voot) who have the content library of their TV shows and films, to leverage on their content library. Similarly, entrants include Eros Now, launched by the film producer with a content library of 2000+ films and Balaji’s Alt, which aims to capitalise on its content production ability. Alternatively, even on the lines of global counterparts, few Indian telcos are offering their OTT platform to capitalise on the rising usage of video to drive data demand. We also note that global players such as Netflix and Amazon have also partnered with various producers to ensure they do not lag behind the need for content.

Content partnership of OTT in India

Source: FICICI KPMG Report 2017, ICICI Securities

Burgeoning mobile internet, smartphone penetration to boost OTT space

One of the catalysts for rising OTT video consumption has been the expanding footprint of 3G/4G and broadband, which would drive the consumption of content on digital platforms. Easy availability of a large video content base and online streaming has resulted in increased video data traffic. With the growing shift towards video consumption, India’s mobile video traffic is expected to grow ~21-fold from 2015 to 2020, at a CAGR of 83.0% to 1.2 Exabytes per month by 2020 from 59.8 Petabytes per month in 2015. The bigger screen size devices of ~4.5”-6.5” provides higher ease to the subscriber for video viewing. The rising smartphone penetration from the current levels of ~300 million to ~700 million by 2020 (based on report by Nasscom), would be aided mainly by attractive price levels as well as high speed data ecosystem led by 4G coverage. This, in turn, we believe, would be the key enabler for a sharp rise in demand in OTT usage.

OTT – poised to be integral part of video consumption

TV, which is a traditional video consumption media, currently reaches 181 million households (and thus has a reach of 900+ million, assuming per household size of five) which is far ahead of 80 million unique video OTT users in India currently. However, one must understand the far reaching impact of availability of internet (both mobile and home broadband) as well as the changing habit of consumption of video on-the-go, which can eventually change the viewing landscape. The monetisation of video through subscription can arguably be a deterrent (in non-urban India). However, digital advertisement, which is poised to grow at 30.8% CAGR over CY16-21 to Rs 29450 crore from current levels of Rs 7690 crore, speaks of the immense potential of advertisement as a mode of monetisation over the next couple of years in India. OTT platform launches by broadcasters such as Sony Pictures (Sony Liv), Star (Hotstar), Zee (Ozee/ditto TV) and Viacom-TV18 (Voot), and global players like Netflix, Amazon Prime entry is a testament to the fact that OTT is here to stay. We are not far away from the days when most of our living room couch potatoes would be found “binging” on video content on-the-go at their fingertips through the powerful medium of mobile internet.

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