Free content would lead to higher losses for OTTs, says Karan Taurani as Hotstar announces free streaming for two tournaments

As Disney+ Hotstar announced that the Asia Cup and ICC Men’s Cricket World Cup tournaments, being held later this year, will be made available as free-to-view to all mobile phone users, Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital, said that if this move by Disney+ Hotstar continues over the medium term it may result in higher losses for over-the-top (OTT) platforms and lead to consolidation, as many may be unable to survive with low ARPU and free offerings.

“In our view, this move will negatively impact subscription revenue growth for global/broadcaster led OTT platforms which are SVOD/freemium based respectively. Offering premium content free does not augur well, as Indian OTTs already deal with challenges like lower ARPU, high content cost, a fragmented market and dominance of social, search and commerce in the ad market,” Taurani stated. 

The IPL Season 16 just ended with Disney having the sole TV rights of the property, whereas digital rights were with Jio Cinema, which offered IPL free to its consumers.

Taurani said, “As per our note free-for-view IPL may doom OTT market released on 10 January 2023, offering the most expensive content, free of cost has caused disruption in the fragmented and price-sensitive Indian OTT market, as JioCinema has been unable to recover more than 35% of its content cost by going pure advertising-based video on demand (AVOD), in line with our expectations.”

Also, no large OTT platform has been able to undertake price hikes in the past six months, due to the disruption caused by Jio Cinema - which offers movies, originals, and cricket content free (Jio Cinema started charging recently only for global content, which has a small base in India), Taurani said.  

“To compete with JioCinema in the digital video advertising segment, Disney+ Hotstar has decided to offer the upcoming Asia Cup and the Cricket World Cup free to mobile-only subscribers. We believe this will be a big disruption and change audience habits to pay for premium content. As per our assessment, more than 90% of OTT consumption is routed via smartphones, as connected TV penetration (8%-10% currently) remains low, on low fibre broadband penetration, and high broadband ARPU,” he stated.

Furthermore, he added that this means a section of the audience will watch premium cricket content free, and it may take time for other OTT platforms to undertake price hikes and start charging customers. 

“We do not expect most connected TV consumers to pay OTT subscription for watching cricket on TV; linear TV may gain more traction, as consumers have the choice to watch it free or on mobile. This, in turn, may lead to a sharp fall in high growth SVOD revenue for Disney+ Hotstar, which may be partially offset by increased revenue in the low growth TV segment (tad better ad- and subscription revenue). Offering cricket free may also lead to a bigger fall in Disney + Hotstar paid subscriber base (already down 14% over the last 6 months due to IPL moving away), if continued over the medium term,” Taurani said. 

“We continue to believe Indian OTT market should adopt the freemium model, with low ARPU for subscription, given consumer price sensitivity; further, a pure AVOD model too may not augur well, as digital advertising in India is dominated by social, search (including YouTube) and commerce, which command 75% share in India’s digital advertising as of CY22 (Source: Pitch Madison),” he added. 

There is also a cause for concern over digital advertising, as it is cyclical in nature with higher dependence on internet and commerce companies and has no third-party measurement mechanism for video content, which limits potential scale for video advertisements. 

“Given the high content cost and fragmented OTT market, we believe it is beneficial to have a steady and sticky revenue base in the form of subscription even if ARPU is lower, as there is potential to hike ARPU in the medium to long-term once the market consolidates. This would further dampen the prospects of other OTT platforms, raising prices and building an SVOD base, as cricket remains the most expensive content compared to movies and web series,” Taurani said. 

“We believe this era of offering free content should be short-lived, as getting consumers adapted again to pay for content may take time. Within India’s OTT market (including YouTube) of $2.1 billion as on CY22 (Source: EY FICCI), 40% of revenue is SVOD based, with a revenue CAGR of 33.2% over CY19-22. It may see a negative impact on growth due to premium content being offered free. Platforms in India’s OTT market would continue to incur losses, due to low respite for SVOD revenue. This also may lead to consolidation wherein smaller firms may be unable to survive, due to lower ARPU and free offerings, given high new content cost,” he added.

According to the FICCI E&Y report, there are more than 540 million smartphone users across India.

The move will help Disney+ Hotstar retain its falling user base which was built largely on live cricket and IPL. 

However, Disney+ Hotstar said that the move to lift the paywall for mobile-only viewers of both, the Asia Cup and the ICC Men’s Cricket World Cup, is aimed at further democratising the game of cricket and making it accessible to as many mobile users in India as possible for the duration of the season.

It may be recalled that Nita Ambani talked about democratising cricket immediately after JioCinema had acquired IPL digital media rights.

“Disney+ Hotstar has remained at the forefront of the rapidly evolving OTT industry in India and the various innovations we have introduced to continue enhancing the viewer experience has allowed us to delight our audiences across the region. Making the Asia Cup and ICC Men’s Cricket World Cup available to a wider audience, we believe, will help us grow the overall ecosystem,” said Sajith Sivanandan, Head of Disney+ Hotstar.

Disney+ Hotstar said that it has created strong viewership momentum for cricket properties, with successful tournaments including the Asia Cup 2022, ICC Men’s T20 World Cup 2022, and ICC Women’s T20 World Cup 2023. 

“Disney+ Hotstar has remained at the forefront of the rapidly evolving OTT industry in India and the various innovations we have introduced to continue enhancing the viewer experience has allowed us to delight our audiences across the region. Making the Asia Cup and ICC Men’s Cricket World Cup available to a wider audience, we believe, will help us grow the overall ecosystem,” said Sajith Sivanandan, Head of Disney+ Hotstar.

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