OTT Platforms: Their Revenue Model and Rise

31 Dec 2019 Read 460 Views

Netflix, Hotstar, or Prime Video. If you have not heard any of these names yet, you might be termed someone from Stone Age by people around you. In the past couple of years, OTT web streaming platforms have gained over-the-top popularity.

Younger folk have a respite from ‘saas-bahu’ serials and now watch something that is novel, entertaining, and relatable. The extent to which the youth loves these platforms is evident that phrases like “Netflix-and-chill” are part of urban lingo. Even independent platforms like YouTube have started modifying themselves to not to lose in the fray

The Greenfield Start

With IT revolution taking place, upcoming of OTT web streaming based platforms was inevitable. In Indian context, the story was written four years back. Mobile operators started offering 4G, smartphone sales were rising, and number of people using internet started increasing.

When the ingredients were ready, the flame of ‘Jio revolution’ cooked the perfect recipe. The reason I term it as a revolution because data became dirt-cheap after that, which was rather expensive until then.

Netflix was reluctant to come to India until 2015. On the day of launch of Jio, Netflix tweeted ‘Thank You Jio’. It was clear that with cheaper data availability at a good speed, Netflix would launch its product for Indian masses as well.

The Rise of the OTTs

Hotstar, owned by Star TV group, was already in the market. This meant it had control over ‘Star Sports’. We all know the plethora of sports ‘Star Sports’ broadcasts. It has rights over not just cricket, hockey, or badminton; it owns the pricey IPL! 

It gained its foot because now people could watch cricket matches on phone. In fact, in the initial phase, watching a cricket match on Hotstar was free. Today, Hotstar offers a ‘Sports only’ subscription model for sports enthusiasts, knowing very well where its most viewers come from.

Sony Liv, owned by Sony Entertainment Television group, tried to go ahead by putting its entertainment shows on the platform. ‘The Kapil Sharma Show’ is its USP. It also owns rights to telecast European football, especially ‘La Liga’ and the coveted ‘Champions League’.

Amazon’s Prime Video integrated its Amazon ‘prime membership’ with the platform. With not much to offer initially, it came up with Indian ‘stand-up comedy’ specials. Later, it also started production under ‘Amazon Originals’ much like its rival and older player of the game, Netflix. Netflix brings its content under ‘Netflix Originals’. Netflix web series have been much popular amongst millennials much before it actually arrived. 

The above-mentioned platforms are only few to be named. Voot, Zee5, Disney Plus, Eros Now, Viu, TVF are some other player competing and challenging the hegemony of TV in this ever rising entertainment industry. Not lately, Amazon launched ‘Amazon Fire Stick’ to bring more than 20 platforms together on your TV.

The Revenue Model

Indian market is different from developed countries. In a country where we own less number of smart TVs but many smartphones, most platforms have tried to capture this mobile using youth. Each of these platforms has their own mobile app with full range of services. This has ensured the reach to even remotest corners of the country, and increase number of viewers.

Currently, there are only two major ways of garnering revenue from viewers. First is the conventional way of using ads in between videos. The other and more popular one is the subscription model.The user is asked to pay some amount upfront and then she can enjoy as much content as they want that too ad-free. 

Each OTT has tried something innovative. Netflix offers shared account, where more than one person can use. In fact, it offers a ‘Mobile only’ subscription at just ₹199. Hotstar offers a ‘sports only’ subscription owing to its massive sports broadcasting segment. Sony Liv offers subscription on daily and weekly basis as well.

Although it looks like the earnings would be great, there is a catch. The platforms not just telecast their own movies or shows; they have to provide content from other production houses as well, like movies. Hence, they have to spend a lot of money in acquiring the rights. Even companies like Netflix, who are international giants in the business, had to spend huge money to provide local content to Indian viewers.

This means that though the model may become profitable, it relies largely on negative cash flow. It means that first the OTT spends money on producing its own content or buying from others. Later, they receive the money from subscribers that pay the fees, which translates into profits.

The Impact

The impact is nothing short of revolutionizing. OTT platforms give people a liberty to choose the content and the time when they want to watch. If you have not watched it yet, you may start over and later catch-up with latest episodes. The content is fresh and entertaining. 

Most millennials are choosing to let go of DTH, or even TV. Even Tata Sky, India’s leading DTH service provider, has come up with ‘Tata Sky Binge’ to support OTT platforms on DTH itself. Airtel, another DTH player, has come up with ‘Airtel Xtream’, which is a device to watch OTT platforms on TV. It is a mix of Amazon’s FireStick and Google’s ChromeCast. 

The Future

Rising smartphones, cheaper smart TVs, cheaper data, fresh content, and liberty of convenience, there seems no reason that one may doubt the future of the OTTs. Though the picture appears rosy, there are some hurdles.
Firstly, one must understand that fundamental reason of popularity of OTT web streaming platforms, like Netflix, was its ‘out-of-the-world’ content. If the content is compromised, the business is compromised.

This is what Hotstar (Star), SonyLiv (Sony) or Voot (Colors-Viacom 18) did not learn. They dumped their douche TV serials on their web platforms. This is the reason that despite much more content in these platforms, Netflix stands out as a trademark of quality. Even their first India-based production was globally acclaimed ‘Sacred Games’. Amazon Prime Video Originals’ ‘Mirzapur’ and ‘One-Mic Stand’ were loved.

This is the direct reason why most of the OTTs, coming from famous production houses, are in losses while much humble ‘The Viral Fever’ is taking strides with its curated content like ‘The Pitchers’ and ‘Tripling’.

Secondly, the platforms are too many with each its own subscription requirement. This means that if I like one show each in Zee5, Netflix and EpicOn, I will have to pay for each of the three. Due to this, OTT platforms become expensive when compared to DTH. 

In fact, Disney launched ‘Disney Plus’ announcing that it will not renew licenses on other OTTs. If you want to watch a ‘Walt Disney Productions’ movie, it will be available exclusively on ‘Disney Plus’. Owing to such issues, the market will have to evolve to a better ‘pay-per-use’ model or a blanket subscription model, much like our DTHs.Third is the data price. With telecom sector in distress, data price hike is inevitable. How will the industry manage its revenue if they lose subscribers due to higher price and poor speed?

Winding Up

The OTT platforms are mushrooming in Indian market. Although, the availability of cheap data and huge consumption base seems to be the driver, if the content is not good, people would rather watch TV. Some awful movies that might not have fared well on silver screens were dumped over these OTTs. With lack of censorship, which is good if not misused, the content should be self-monitored and then served to audience. After all, entertainment is the rare business where creativity dominates business models.

About the Author: Vivek Tiwari | 36 Posts

Vivek Tiwari is a Software Engineer and a Data Scientist who hopelessly fell for Economics. His plans to move to Finance might now save mankind from his IITJEE selection story.

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