MX Player, one of the largest OTT players operating on the AVoD (advertising video on demand) model, announced ‘MX Gold’ earlier this year. This enables paying subscribers to enjoy the platform’s content without ads and other benefits such as downloads and more. Similarly, we have seen platforms like Zee5, AltBalaji and Disney+Hotstar, offering a hybrid model to users where some content may be restricted behind pay-walls.
This raises an important question while a number of OTT platforms in India were initially running on AVoD models, what is making them go the SVoD (subscription video on demand) route now?
According to PwC's Global Entertainment & Media Outlook 2022-2026 report, the total OTT revenue more than doubled in 2020, partly driven by the absence of public entertainment and people being forced to spend additional time at home.
“This trend continued in 2021, with revenue nearly doubling again. While growth rates will slow, the market will still expand at an impressive 14.1% CAGR to reach Rs 21,032 crore in 2026. It is subscription services that are driving this rapid growth, accounting for 90.5% of revenue in 2021 and set to account for 95% in 2026,” said the report.
On the other hand, according to TMT Predictions 2022 report by Deloitte, India currently has about 102 million SVoD subscribers and this number is estimated to increase at a CAGR of 17 per cent to reach 224 million by 2026. The report said, “India’s AVoD market is expected to increase its current rate from $ 1.1 billion in 2021 to $ 2.4 billion in 2026. Over the same period, SVoD is expected to grow from its current $ 0.8 billion to $ 2.1 billion. The overall OTT space is expected to grow at a CAGR of more than 20 per cent to reach $ 13-15 billion over the next decade.”
Cost of production a challenge?
A spokesperson from a leading Indian OTT platform said that the audience is today used to quality content and stories. The content consumption on OTT platforms continues to grow, and the tight competition is compelling players to come up with more and better content. He added that players today are today facing challenges with hiring talent and producing quality content as well as acquiring new consumers, along with marketing their content.
Meanwhile, Shekhar Banerjee, Chief Client Officer and Office Head – West, Wavemaker India, said, “Digital audience behaviour is very fragmented, and advertisers will continue to focus on reaching consumers at the lowest cost. In such a scenario it is close to impossible for AVOD platforms to have a sustainable business model given the input cost on programming.”
“The answer is in between. Expect all SVoD platforms to have a cheaper subscription package with advertising and AVOD platforms to have a premium offering behind the pay wall,” added Banerjee.
Subhasish Gupta, Managing Director-Sales, India and SAARC Region, Brightcove, said, “As the OTT marketplace grows more crowded by the day, determining how to monetise content to drive revenue becomes a major decision for OTT businesses. Traditional broadcasters and new media companies are leveraging new revenue models such as AVoD, SVoD, TVoD, and the Hybrid model, which come with unique benefits and challenges.”
Gupta states that AVoD facilitates audience sampling of service and generates larger audience growth, given that it is free at the point of consumption.
“However, businesses cannot presume that 100% of the audience has the same preferences. For instance, free-to-air broadcasters have small segments of audiences who are willing to pay to watch specific content slightly ahead of the broadcast schedule. Hence, AVoD remains a viable option and a source of revenue for platform operators. SVoD, on the other hand, maximises average revenue per unit (ARPU). Leveraging a creative content curation and marketing team can enable the business to build a more predictable income stream over time,” said Gupta.
Gupta also said as the demand for local content production drives up acquisition costs, some OTT services are sourcing content for ad-supported subscription tiers to attract audiences. He said this flexible hybrid offering of tiered subscription models and certain windowing content is recently gaining more attention as it helps create a soft transition in moving the audience to a subscription model.
“In this golden age of video entertainment, a multi-tiered hybrid OTT revenue model is thus driving upsell opportunities in India and is an exciting new option for service providers to consider to scale their offerings, with their target viewer’s interests and revenue value proposition in mind,” added Gupta.
Prachi Narayan, Vice-President – Content, Havas Media Group India, said, “India has a unique audience base with a large number of consumers reluctant to pay a fee for content. While they look for cheaper ways of consumption, there is a comparatively smaller section, willing to spend a premium fee on specialised content. In this aspect, both AVoD and SVoD have their unique strengths. While one offers reach and quick turnarounds, the other offers habitual engagement. With the diverse nature of the Indian market, we need to look at the OTT model in India through a different lens than the rest of the world. More than platforms switching to SVoD, this is about OTT players adopting a hybrid model catering to both audiences instead of standalone models.”
What does Netflix’s announcement of introducing ads mean for the Indian market?
The global OTT leader Netflix has announced it will soon be rolling out ads on the platform. The company has been struggling globally, it lost two million subscribers in the second quarter and its share prices have fallen greatly.
Netflix currently has about 222 million global subscribers. Meanwhile, its global competitors like HBO Max, Peacock and Disney+ continue to operate on ad-supported models. While ad-free quality content was one of the USPs of the platform, in 2022 CEO Reed Hastings said, “An ad-supported Netflix makes a lot of sense for consumers who would like to have a lower price and are advertising tolerant.”
Speaking about what this means for India, Narayan of Havas Media Group said, “Netflix has been trying to find the Indian audience’s pulse for a while. While we can see an active change in their approach to curating content for the Indian viewer, AVoD content will be another step in the right direction to increase their subscriber base here. We will definitely see an increase in competition in the AVoD space with this giant adapting to the Indian ways. Brands are ready to jump at the opportunity of creating content with Netflix in a brand-safe environment.”
Speaking about what Netflix’s move means for the industry, Gupta of Brightcove stated, “As several Indian OTT platforms deploy an ad-funded business model, a significant player like Netflix creating interest in the OTT ad market by offering AVoD content will positively impact the industry. This move will drive revenue growth for the other platforms, although at the expense of traditional TV, and will open doors to several opportunities for marketers to advertise on a premium platform like Netflix.”
What is the future of the TVOD (Transcational-video on demand) model in India?
Amazon Prime Video has also introduced a TVoD (transactional video-on-demand) service in India that will be available to Prime as well as non-Prime members. Other than Amazon Prime Video, platforms like BookMyShow, ErosNow and ZeePlex also offer this model.
This model peaked in the Covid period when many movies were released directly on digital platforms in the absence of theatres.
Speaking about the future of the TVoD model in India, Narayan said, “ In the immediate post-Covid world, TVoD did fill the gap between a theatrical and SVoD release of a film. It does allow the viewer, the flexibility to pay only for the content that they want to watch. That said, it has a small viewer base and while we may see a marginal increase here, I am not sure if it can beat the SVoD space. India is a very price-sensitive and value-centric market. Subscribers usually wait for these movies to come on an OTT platform if you are already subscribed to a few platforms.”
“TVoD enables niche content creators to maximise the revenues from small audiences or live events. Even if the platform does not directly run advertising, collaborating with brands is incredibly beneficial, especially in Asian countries, since the audiences are much more open to brand messages. This helps brands, OTT businesses, and viewers establish a strong value exchange,” stated Gupta of Brightcove.