Content is king, until you ask customers to pay for it. India’s largest telecom companies are discovering this the hard way. They have been announcing a plethora of deals with content providers. Bharti Airtel Ltd and Idea Cellular Ltd have announced tie-ups with Hotstar, Amazon Prime, Discovery Communications, etc., while Reliance Industries Ltd and its subsidiary Reliance Jio Infocomm Ltd have gone a step further and even acquired stakes in some content providers.

But while investments are rising, there is no sign yet of monetization. If anything, telcos seem to be headed in the reverse direction. Reliance Jio said over the weekend that existing Prime members needn’t pay anything to access its plethora of apps, which it says is worth Rs10,000. In the last fiscal year, it had collected Rs99 from these subscribers for a Prime membership.

That represents a loss of Rs7 in terms of average revenue per user (Arpu), which is about 5.7% of the Arpu the company generates from its flagship plan. While Reliance Jio’s investments on content are larger, the fact is that costs in acquiring content have increased for all companies. And with Reliance Jio handing over content for free for an entire year, incumbents will be forced to do the same.

This column pointed out last month that telcos are being squeezed at both ends, with lower tariffs on the one hand and rising investments on the other. Add content to the list of growing investments. And as the chart above shows, the market for digital video advertising is tiny compared to the telecom industry’s size. The only hope is to charge subscription fees to recoup investments in content, although that looks like a far cry.

For now, Reliance Jio’s aggressive stance with regards to free content is clearly aimed at customer retention; monetization seems to be the last thing on its mind.

For perspective, Reliance Jio’s and its parent’s investments in acquiring stakes in content providers have thus far added up to less than $1 billion, according to analysts at Jefferies India Pvt. Ltd. This is a fraction of the total investment of around $40 billion in the Reliance Jio project. As such, it wouldn’t be in a tearing hurry to monetize content and recoup its investments in that space. It’s far more important to retain and grow its subscriber base to recoup the far larger investments in its data network.

In this backdrop, other telcos have no option but to match Reliance Jio’s content offerings at as low a cost as possible. “We like Airtel’s approach of being a content aggregator rather than investing heavily in content," analysts at BNP Paribas Securities India Pvt. Ltd said in a 12 March note to clients.

Even so, there is a non-trivial cost attached with providing free content, which will add to incumbents’ margin woes. For companies that create content, it’s still a win-win, what with telco carriers outdoing each other in bringing content to their subscriber base. Maybe, just maybe, Reliance Jio is doing the smart thing by investing in the companies where it sources content.