“Help investment in OTT sector in India, don't hinder it”, Frontier Economics tells policymakers

India’s successful online curated content or the OTT sector is enabled by a positive, supportive and stable policy and regulatory environment, which partly relies on elements of self-classification and industry self-governance, and is open to investment. India, therefore, benefits from new employment opportunities, higher economic output, increased exports, a more competitive skills base, and expanding sector infrastructure as a result. This, in turn, creates conditions to attract new investment. To promote made-in-India productions, and take them to the global stage, government policies should focus on facilitating investment into the industry, says the UK-based economic consultancy firm Frontier Economics.

The popularity of the OTT services, and the local content they offer, has been growing and nearly 148m Indians subscribed to OCC services in 2020. In addition, 88% of internet users in India use OCC at least once a week, spending 56% of their time on OCC services watching local content.

OCC related revenue is increasing. Revenue generated by India’s broadcasting and online video sector increased by 159% between 2012 and 2019, following the entry of OCC providers including, predominantly regional players such as ALT Balaji, Eros Now, Voot, JioCinema, MxPlayer, Hoichoi, Sun Direct and Zee5, and international providers including Disney+ Hotstar (formerly Hotstar), Netflix, Amazon Prime, Viu, SonyLIV, and AppleTV+.

The sector has been further strengthened by the recent launch of Starz’s Lionsgate Play. Other international services are expected to be available soon. Since 2012, the revenue of OCC services has risen to $483m (INR 34bn), and it is projected to rise to $2.6bn (INR 183bn) by 2025.

In its report titled “The economic impact of online curated content services in India”, Frontier Economics highlighted that putting up barriers may put off investors in content.

Countries that have greater policy restrictions tend to have lower levels of investment in content. While there are many other factors at play, the chart below is consistent with the hypothesis that more protectionist policies discourage content investment (at least for the countries selected). The result of lower content investment is inevitably lower employment and skills development in the sector.

Explaining how protectionist policies can hurt the economic potential of local M&E industries, the report said, “Protectionist policies intended to shield local companies from international competition could result in local industries that are inward-looking, less innovative and less able to produce high-quality content that is in demand internationally. Many countries have cultural policies aimed at promoting local content, but some come at a cost and prove ineffective at achieving the goals they pursue. Our analysis, which examined the relationship between protectionist policies and AV (M&E) trade (i.e. licensing content internationally), found that higher levels of protectionist policies (for example the introduction of content quotas) lead to reductions in AV (M&E) exports. This implies that countries with higher levels of protectionist policies are less able to monetise their content in international markets, or show off and promote their culture to audiences around the world.”

The report cautioned that the policies should help investment and not hinder it and said that the pro-investment policies can keep India’s Media & Entertainment sector growing.

Governments benefit when they attract investment in content: this high-value-added activity makes a disproportionately large contribution to GDP, provides skilled, well-paid employment, stimulates economic growth, and supports a country’s exports.

However, the production of top-quality content is costly. It requires sector-specific infrastructure, state-of-the-art technology, complex production processes and large crews of highly trained specialists from many different trades. At the same time content creation, like any art form, is a risky investment.

Policies such as tax rebates or subsidies, that mitigate the risk and high fixed costs of content creation, have been found to significantly increase content investments. One example of such a policy is the Ministry of Commerce and Industry’s Champion Sector Services scheme which targets 12 sectors, including the audiovisual services, through funding and support for initiatives to help the sectors realise their potential.

“Policymakers can also ensure a strong supply of skilled, high-value workers by supporting training and education programmes, that will benefit both global and Indian providers of local content,” the report said.

I&B Ministry has adopted a "light touch" content regulation framework for OCC, including elements of self-classification and industry self-governance. This policy supports the case for investment by providing stability and confidence in the regulatory environment. “However, the introduction of new regulations, or the extension of legacy economic regulations that were designed for a different media era, have the potential to disrupt the sector and risk harming incentives to invest,” the report pointed out.

India’s existing policy framework, encourages investment in the M&E sector and underpins a virtuous circle of content creation and skills development. Catalysing investment in infrastructure and skills enhances the industry’s capacity and capabilities. This in turn makes it an increasingly attractive location for new investment.

These policies can nurture the growth of self-sustaining “creative hubs of local production” with firms incentivised to locate and concentrate activities in India to the benefit of the country’s economy. For example, Netflix’s Post-Production Partner program is profiting post-production firms such as Aradhana Films, Audiomagick, Prime Focus Technologies and Sound & Vision India. The collaborative scheme aims to improve the quality of post-production work including dubbing, audio description, scripting, and quality control.

Policies that discourage or constrain foreign investment and market entry can disrupt this virtuous cycle. New regulations, that alter the self-governance regime for OCC services, can likewise disrupt investor confidence in the sector. Instead of the local M&E sector enjoying rising investment, cutting-edge infrastructure and ever-higher skill levels, heavy-handed policies may stifle creativity, and hamper innovation and growth opportunities in the long run.

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