Bangalore-based online DVD rental start-up Seventymm Services Pvt. Ltd has raised around $10 million (Rs 40.7 crore) from venture capital investors since 2005. In June, the company acquired a similar start-up — Delhi-based Madhouse Media Pvt. Ltd — for an undisclosed amount. Founder and CEO Raghav Kher plans to raise $10-20 million (Rs40.7-81.4 crore) in a final round of fund-raising next year. Kher spoke to Mint about the company’s future expansion plans. Edited excerpts:
How did you come up with the movie rental idea?
During our vacation in India, my son had expressed a desire to see Batman. We looked for a place that would rent us the movie and finally located a store 45 minutes away from home. When we went there, we found it was Spiderman they had, not Batman. We were disappointed, but took the movie anyway. But when we got home and played the movie, we found something totally different, not Spiderman. To make matters worse, we got charged a late fee.
I felt all this just didn’t make sense as a consumer. I did some research and found out that people renting movies wanted a mix of choice, convenience and community. And to cater to this need, I started Seventymm.
Why did you initially go for funding?
In this business, you need a substantial amount of investment. Also, getting big VC names to fund your business helps in the long run.
How did you get access to VCs?
We did it through contacts. And for series B, we just called up and we got two term sheets. If you are an experienced entrepreneur, I think it becomes much easier.
Why did you acquire Madhouse?
We wanted a presence in Chandigarh and they had a team and office already set up. We liked their co-founders and they have a fit in terms of chemistry with our team.
How is your business model different from Netflix?
When people ask me, What is your business, I say Netflix meets FedEx. Netflix uses the US postal system, but in India it doesn’t work. A big part of our business is actually running an in-house courier company. We have invested so much in creating this network across six cities, and soon 20 cities, and have written a significant amount of software to manage this multi-city inventory. The operations part is the toughest in this business.
How do you compete with local stores?
I think the challenge is changing consumer behaviour. In India, the behaviour is: ‘Okay, I want to watch a movie, let me go to the DVD store and get it.’
The second change in behaviour is moving from the pay per view model to a subscription model. Today we (Seventymm) are just doing the subscription model. The Indian market will go through the same consolidation process that the US market did.
Raising funds: CEO Raghav Kher.
Piracy is still a big issue in India. How do you deal with it?
Piracy is our competition. A large segment of our market today thinks nothing about paying Rs200 for a pirated movie. It works out to be much cheaper than going out to see a movie in a cinema hall and spending Rs1,000.
But you also have a sizeable population that wants to pick up their movies for as little as Rs10.
You know, my driver said he listened to my ad and liked it. So when I asked him if he watched movies on DVD, he says he picked up two every week and loaded them onto his surround-sound home theatre system at home. He also said the other eight drivers in the building all had their own DVD players. My driver pays Rs30 for his entertainment but isn’t averse to paying Rs200 if he can get better service. His problem is that he isn’t net savvy and says he is more comfortable calling up the local store for his evening fare. I was surprised to find that my maid-servant in Mumbai also has a DVD player.
My point is that there is a big potential market, and that behaviour will change with time, with higher wages and a higher level of education.
But despite the price, won’t people still want the pirated stuff simply because it is available much faster?
No. What we have found is that people who rent movies, don’t go for the latest fare. Forty per cent rent Hollywood, 30% go for Bollywood and the rest go for regional movies. What sells in India is action and horror.
Where do you see your business going?
Today we are limited by broadband, but that is set to change in the next three years. You will be able to download movies or watch online. We have planned our trials for next year. Our long-term vision is any movie, any time, anywhere in India. That’s where we see our business heading.
How large is your market potential?
There are about 1.5 million DVD players sold a month. In three years, that is about 80 to 100 million DVD player owners. Today, about 50 million own a DVD or VCD player. The way we look at it: about Rs50 per DVD, let’s say $1. People will watch two movies at home, times 100 million movie watchers. That gives me revenues of about $200 million, times market potential times 12. So we expect the overall market to be $2.5 billion in five years. And we look and say, can I get $100 million of that? We think getting one million users is reasonable.