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Prime Video and Netflix: Spending money to build content library, will that be enough?

OTT players are heavily investing in Indian market. Currently, Rs 2,500-3,300 crore has been set aside for OTT services in the country, especially for original content production. But how long will OTT players take to recover costs?

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BestMediaInfo Bureau
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Prime Video and Netflix: Spending money to build content library, will that be enough?

Video streaming services are burning millions in the Indian market not only on content but also on marketing. Both Netlix and Amazon Prime have spent Rs 20 to Rs 30 crore each on marketing shows such as Sacred Games and Comicistaan.

The local OTT players such as Hotstar, Voot, Zee5, Eros Now and ALTBalaji are also investing aggressively to build shows for the content-hungry Indians.

In India, currently all internet-based companies are just spending money to acquire customers. And so is the case with OTT players. But at what stage is their investment and how soon do they expect to break even? Experts say, not before 2020.

According to a Delloite report, the top 30 players are going to spend between Rs 2,500 crore and Rs 3,300 crore on production, distribution and marketing of content.

"For players such as ALTBalaji, Zee5 and Hotstar, it won't be very long since they have their existing library of shows and they know what kind of a budget could break even in the Indian market. Hence, Zee is doing a show on Sunny Leone that guarantees a good user acquisition," an industry expert said.

OTT video viewers are expected to grow to 355 million by 2020, but considering the rate at which broadband connectivity is growing now, the number may move at a faster pace

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Nachiket Pantvaidya

Recently, Nachiket Pantvaidya, CEO, ALTBalaji, had told BestMediaInfo.com that he was expecting to break even by 2020. The company is investing Rs 150 crore every year on shows and is expecting to have eight million paid customers in two years. The platform has high penetration in non-metros as it has a subscription fee of just Rs 25 a month.

But for international players like Amazon and Netflix, breaching the break-even point would be a tough task because they lack a local content library. Indian players also feel that the volume of content could be the key to profitability as it will keep viewers glued.

Pantvaidya of AltBalaji said that the biggest challenge in the Indian OTT segment is to add volumes to the content library, including AltBalaji. He said, “We need to scale up our output because even though we are India’s No. 1 original content producers, I feel that the volume of the content has to still go up because internet is spreading or video viewing on internet is spreading at an amazing rate. It is largely because the telcos have dropped their rates for internet so everybody has now got an affordable internet package and to cater to the sudden expansion that has happened in the last six months, we need to scale up the volume of the content in a big way.”

Talking about Amazon Prime Video's business model, Subrat Kar of Vidooly said the e-commerce giant may not immediately be worried about making its video service profitable as the focus is first on the retail website. “Amazon has tried to marry commerce with content. Their primary business is commerce and to drive consumers to that, they are using content as a marketing channel. If one comes onto the platform, the company can compensate through the e-commerce platform to some extent.”

By that logic, a few people might subscribe to Prime purely for the e-commerce proposition, while a few others will do it for video proposition. The recent plethora of content that Prime Video unleashed ahead of the Prime Day sale was more to acquire and retain consumers. “Amazon is the only company at this scale that is present in both OTT and e-commerce segments. Though video is not their main business, they are not Netflix. On the side, if they end up making some money, it is cool,” said a seasoned OTT expert.

When a consumer enters the Prime club, who takes the credit for it, OTT or e-commerce?

He further explained, “Someone who has accessed e-commerce right after becoming a Prime member, will be counted as an e-commerce acquisition, while someone who logged in and landed on Raazi or a Comicstaan is counted as a video acquisition. For RoIs to make sense, the amount of subscription monies generated by the bunch of consumers acquired for video has to be greater than the content cost on that particular piece of content. The entire acquisition cost of those many subscribers is credited to Prime Video. Similarly, the company would be calculating the RoIs for the Amazon e-commerce platform separately. The two sub-sets of audience do have a certain level of overlap.”

Looking at this, it seems that video is a growth mechanism for Amazon’s e-commerce business. However, the question to be asked is that whether the number of subscribers that Prime will acquire or retain on the back of tent-poled properties will generate enough money, against what they have paid in acquiring this expensive content. Nonetheless, Amazon Prime has to keep producing content for reasons discussed further in the story. About a year ago, the Amazon board had questioned as to why the Founder Jeff Bezos was investing so much in prime when there wasn't a good RoI in sight.

Now, look at the Netflix strategy. Everywhere else in the world where Netflix has been operational, the OTT giant has been able to sell its premium English language content and generate enough to make business sense. India is a unique market which Netflix has realised and is gearing up. The big budget shows like Lust Stories and Sacred Games are not the only ones as the network has already announced to have started work on a couple of more India-specific content. This has proved that the investments will only increase from here. As per the market reports, the company has earmarked about Rs 500-600 crore to be spent on Indian original shows in a year. The plans are heavy on producing Indian origin feature films – as many as 8-10 per year – as Erik Barmack, Vice-President, International Originals, Netflix, was quoted in one of the financial dailies.

Next in line are the shows, including Selection Day, Bard of Blood and Mighty Little Bheem. Though Netflix is profitable globally but how long would it take before it starts making money in the Indian market is still not clear.

Info@BestMediaInfo.com

Netflix Prime Video Spending money to build content library will that be enough?
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