Netflix, Amazon, Hotstar long way from making profits in India
New Delhi: India may be hoping to double its 250 million online video audience by 2020 but the close to 30 video streaming platforms in the country have a long way to go before any of them makes any real profit. “There are many challenges, but we are in investment mode in India. And for a long time we will be spending more on local content productions than we are getting back. But that is part of having the long-term view,” said Netflix founder and chief executive officer Reed Hastings on the sidelines of a slate event for the Asia Pacific region earlier this month.
Netflix India reported a marginal profit of Rs 20.2 lakh for 2017-18, according to its filing with the Registrar of Companies last month.
Like Netflix, the road ahead is long for every other video streaming platform in India that is looking at cashing in on the country’s rapidly growing online video audience and is investing aggressively in original content.
“Just like a film can be shot for Rs 5 crore or Rs 100 crore, the investment for content that is put behind paywalls in India can range from Rs 7 lakh to Rs 1 crore per episode,” said Neeraj Roy, managing director and CEO, Hungama Digital Media. The scale of the show including talent, location and logistics of production like technical equipment were the deciding factors, he added.
The higher the budget, the tougher it would be for projects to become commercially viable, Roy said.
Budgets need to be controlled because OTT (over-the-top) platforms have not exactly cracked the magic formula in India. The two revenue models --- advertising and subscription -- both face challenges. Subscription issues start with the platform’s price point. For example, Netflix, the most high-end, niche OTT model in India, prices its base subscription plan at Rs 500 per month compared to competitors’ Amazon Prime Video’s Rs 999 for a year and Hotstar’s Rs 199 a month or Rs 999 for a year. That explains why industry experts estimate the viewership of Sacred Games, Netflix’s first India original, to be a fraction of the 250 million large online video audience base in the country. This is a function of the limitations of the India market.
Second, the nature of the online video audience is India is said to be male-dominated with an affinity towards local languages. “Roughly 70% of our audience is male, which mirrors the current online video audience in India to a great extent,” Roy said. Uday Sodhi, executive vice-president and head, digital business, Sony Pictures Network India, confirmed that two-thirds of the user base on streaming service SonyLIV was male and the big audience target group was between 18 and 34 years in the metros and second-level towns.
That, consequently, leads to dark, gritty thrillers and gangster dramas like Sacred Games or Amazon’s new show Mirzapur, which have limited appeal for female audiences.
Third is piracy. As with linear models like movies and television, OTT shows, including Scared Games, have found themselves available on torrent websites within hours of launch. Hungama’s first original web series, Damaged, has had over 169,000 downloads across different torrent websites since its premiere in early June.
The challenges are just as grave for advertising video-on-demand platforms where the market has not grown to the same extent as the overall online video space. Digital advertising is projected to grow by 27% in 2018, according to a forecast by media agency Magna.
“The advent of Reliance Jio hit the supply side of the OTT market, increasing the inventory but the advertising market did not grow to the extent to be able to balance the rates,” said Ali Hussein, chief operating officer, Eros Now, referring to the cheap data packs made available by players like Jio that have allowed a lot more online content to be created and consumed. “Plus, demonetization and the imposition of the GST hit the economy quite badly. The overall online advertising revenue is Rs 1,500-2,000 crore while television ad revenue is more than Rs 50,000 crore. There is obviously significant headroom for growth. But the business has not currently caught up with the consumer demand. So irrespective of whether you’re AVoD or SVoD, you’re trying to find your sweet spot,” he added.
Hussein and other OTT heads say as a business model, this is not that bad. But if you look at isolated cases, cost of content and marketing, recovery is some time away.
“Right now, we’re in the investment phase and it is too early to start worrying about profits. We’re only scratching the surface and there is a huge amount of excitement in the market about how consumers are adopting,” Sodhi said.
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