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In-depth: Amid India's booming AVOD landscape, what's on the horizon for SVOD?

According to the Global Entertainment and Media Outlook 2023–2027, report by PWC, ad-supported streaming will become the new normal in India. Meanwhile, revenue growth will be driven by the competitive SVOD sector, which will expand at a CAGR of 13.0% to reach $2.6 billion in 2027

As the burgeoning streaming landscape in India was finding its footing, with OTT platforms identifying their strategies, a game-changing shift emerged. In a recent industry shake-up, the ad-supported streaming model, also known as advertising video on demand (AVOD), gained momentum, signalling a noteworthy evolution in the scene.

Industry experts believe that JioCinema's bold decision to offer a range of top-quality content, excluding Hollywood movies, for free, plus the cost-conscious behaviour of Indian viewers who hesitate to subscribe to several OTT platforms, has compelled major OTT players to think about shifting towards advertising-supported streaming.

This raises an important question: In light of the surging AVOD trend in India, what is the future positioning of SVOD?

According to the Global Entertainment and Media Outlook 2023–2027, report by PWC, ad-supported streaming will become the new normal in India. Total global AVOD revenue will increase at a CAGR of 13.8% from $ 28.7 billion in 2022 to $ 54.8 billion in 2027. In India as well, AVOD will grow at a higher rate than subscription service revenue.

"By 2027, AVOD, largely from local and regional broadcasters, will account for 22.3% of OTT revenue, while SVOD will have a 73.8% share. In 2022, SVOD accounted for 78.1% of the market revenue in India, while AVOD constituted 15% of the market revenue," the report stated.

The report also highlighted the fact that the SVOD  sector, which has led the streaming boom over the past decade, will continue to account for the biggest proportion of global OTT revenue by the end of the forecast period. The global SVOD market will account for 62.5%, or $ 109.1 billion, of the global OTT market in 2027.

"In India as well, revenue growth will be driven by the competitive SVOD sector, which will expand at a CAGR of 13.0% to reach $2.6 billion in 2027," the report stated.

On the other hand, according to Dentsu’s 2023 Media Trends report, ad-funded video platforms are set to overtake subscription channels with time, as major streaming platforms are adding ad-funded tiers.

Factors behind AVOD's growth in Indian streaming

Karan Taurani

Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital highlighted that advertising plays a crucial role in India due to the audience's inclination towards free content rather than paying for it.

This preference is particularly evident in the mass market, including tier 2 and tier 3 segments. Despite being receptive to advertisements, this demographic is reluctant to invest in paid content. The widespread adoption of an ad-based model in India can be attributed to this audience behaviour, Taurani said.

“This trend is not exclusive to India. Globally, countries facing challenges in expanding their subscriber base beyond a certain threshold are turning to ad-based models. This shift aligns with the future trajectory, especially in markets like India, where low Average Revenue Per User (ARPU), a preference for bundled services, and a demand for discounted rates prevail. In such a landscape, an ad-based model appears to be a sensible approach in the short term,” he added.

Namita Viswanath

Namita Viswanath, Partner, Induslaw said that the rising subscription costs across multiple SVOD platforms, coupled with the fragmentation of must-watch content, have made the fully ad-free experience less affordable for many households.

AVOD, offering discounted or free access in exchange for minimal ad interruption, appeals to cost-conscious consumers seeking favoured content at a more affordable price. This shift aligns with consumer behaviour trends and economic realities, making AVOD a preferred model in the Indian streaming ecosystem, she added.

SVOD's future in India amid booming AVOD landscape

According to EY’s 2023 report on the Media and Entertainment sector in India, from 45 million households paying for one or more SVOD services, the number will grow to 52 million by 2025, if current pricing is maintained.

The report also highlighted that the number of households paying for one or more SVOD services can reach 100 million, and total digital video subscriptions can increase to around Rs 110 billion by 2025.

Reflecting a comparable viewpoint, Taurani underscored that SVOD services are expected to maintain their dominance, albeit with subdued growth, possibly for the next 12 to 24 months. The trajectory hinges on the evolution of JioCinema, particularly in terms of implementing customer charges, a move anticipated in the near future. Additionally, the market's consolidation in India will play a pivotal role. Changes in these aspects are likely to drive an upswing in SVOD revenues.

“This can't be a trend forever because OTT platforms cannot make money with just pure AVOD revenue. The Indian market will have a freemium-based kind of an offering which will have SVOD and AVOD,” he added.

Uday Sodhi

Similarly, Uday Sodhi, Senior Partner and Co-Founder, Kurate Digital Consulting said, “AVOD and SVOD are forms of monetisation and it's very likely that most OTT platforms will offer a blended ad and subscription-based model.”

According to Viswanath if Induslaw, as the global AVOD industry surges, SVOD services in India must sustain prominence by leveraging differentiated content, user experience, and hybrid models.

Furthermore, she went on to say that SVOD providers must prioritise diverse and exclusive content while enhancing user interfaces to justify subscriptions. Strategic partnerships, content curation and enhanced user experiences will reinforce SVOD's foothold amid the burgeoning AVOD landscape in India, ensuring its relevance and sustained prominence.

Defining AVOD's next chapter: Strategies for Growth in India

Sodhi emphasised that OTT platforms need to invest in advanced ad platforms and better targeting solutions for maximising returns from every user view.

Chandrashekar Mantha

Chandrashekar Mantha, Partner, Media and Entertainment Sector Leader, Deloitte India, pointed out that one of the few sectors in the Media and Entertainment segment, growing consistently in double digits is OTT, with a CAGR of over 30% in the last five years.

“The year of COVID-19 played an uplifting role for OTT and gaming industry in India and since then the habit forming has continued. India had almost over 428 million viewers on OTT in 2022 and AVOD contributed 70% of this universe. This clearly accentuates, a large part of our Indian audience is happy to be served a few ads with no subscription charge to be paid,” Mantha said.

It is envisaged that this trend will continue and AVOD will be the preferred model for OTT players, while the consumer segment that prefers non-disruptive premium experience will adopt the SVOD mode,” he added.

He went on to say, “Revenue growth for SVOD is forecasted to grow at a CAGR of 19% ($ 2.9 billion by 2027), whereas the CAGR of AVOD is estimated at 16% ($ 2.42 billion by 2027). Hybrid models have also been explored by OTTs and have been reasonably accepted by price-sensitive customers. One of the large OTT players commenced their AVOD offering in select countries last year to push its stagnating growth trajectory and has witnessed very good response.”

Meanwhile, Taurani said that in order to enhance the AVOD model, a crucial focus should be on presenting a compelling proposition to advertisers. This involves establishing a robust, tech-based platform that ensures transparency for advertisers regarding consumption patterns, time spent and overall performance metrics. The aim is to provide advertisers with improved ROI, thereby fostering advertiser engagement.

“Given the fragmented nature of digital advertising, including social search, e-commerce, influencers, and display, OTT platforms must prioritise offering optimal solutions to advertisers. This entails delivering comprehensive data on customer behaviour, conversion rates, transparent insights into content viewership across demographics, locations, and more, facilitating better-targeted advertising,” Taurani said.

“In the current competitive landscape, where OTT platforms contend with giants like Google, Facebook and Amazon, transparency in sharing customer data is vital for driving advertising revenue. This requires significant investments in technology to establish transparency with advertisers, ultimately attracting ad dollars,” he added.

Taurani highlighted that additionally, substantial investment in improving user experience is imperative. Many Indian-based OTT platforms currently lag behind global counterparts like Netflix, Disney+, Hotstar and Amazon in terms of user experience. Prioritising technology investments to enhance user experience is essential for retaining a large customer base for AVOD.

While attracting a substantial traffic volume and concurrent viewers is important for AVOD success, a poor user experience jeopardises customer retention. Therefore, a dual focus on technology investments for transparency with advertisers and enhancing user experience is crucial for the growth of AVOD platforms, he said.

Viswanath said, “As the AVOD model gains momentum in India, future growth is expected to hinge on contextual advertising integration, leveraging AI/ML for intelligent ad targeting, and embracing gamification for enhanced engagement.”

“Shoppable ads and retail media network ads are anticipated to play a pivotal role, creating a seamless path from engagement to purchase. Additionally, influencers collaborating on short-form content and the exploration of metaverse advertising are poised to redefine and amplify the AVOD model's success in the Indian market,” she added.

On being asked if ad-supported streaming is on its way to becoming the new normal in India and what impact this shift could have on user behaviour and industry dynamics, Taurani said that this ad-supported streaming is only for the near term. The market is fragmented, primarily due to JioCinema's disruptive strategy of offering free content.

“However, in the near to medium term, we will see markets eventually getting consolidated. The potential merger of Zee and Sony into a single platform and even JioCinema will get merged into one platform, are plausible scenarios,” Taurani said.

“As the OTT landscape consolidates, platforms are likely to transition from free offerings to subscription-based models. This shift is essential for sustaining the business economics of OTT platforms, as the current fragmented market and reliance solely on ad revenue lead to substantial losses. To achieve scalability, dual revenue streams, including subscription fees, will become crucial. With the market consolidating over time, subscription revenue is expected to gain significance, compelling users to eventually pay for content,” he added.

On the contrary, Viswanath believes that ad-supported streaming is poised to become the new normal in India, as indicated by the significant growth projections for AVOD (advertising-based video on demand). This shift could reshape user behaviour by offering cost-free content, driving increased viewership.

The industry dynamics will witness a surge in AVOD revenue, impacting the balance between subscription and ad-supported models. Advertisers will gain a broader reach, but the challenge lies in maintaining viewer engagement amidst potential ad fatigue, necessitating strategic ad placement and innovative formats, she added.

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