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Will Netflix’s entry shake up the Indian OTT market?

MUMBAI: Will Netflix’s entry shake up the Indian over-the-top (OTT) market, which had seen frenzied activity in the previous year?

A lot will depend on what kind of local content Netflix offers and at what price point. Then there are other challenges like low bandwidth, piracy and lack of digital payment options.

All of this aside, the entry of Netflix into the Indian market adds a new dimension to the OTT space. It is expected to expand the digital video market, up content investments and set up a pricing model for Indian consumers who are largely used to free or pirated online content.

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Sony Pictures Networks India EVP and head of digital business Uday Sodhi believes that the OTT market in India will see rapid growth. “The market is huge in terms of size. With smartphone penetration going up, bandwidth set to improve with the launch of 4G, and payment systems improving, the market is set to grow and there is room for everyone here,” he said.

Surely, there will be more action. While the existing OTT players will increase their investments, there will be two new arrivals. Viacom18 will launch Voot and content production house Balaji Telefilms will get its OTT platform up and running under the Alt brand.

uday-sodhi 1Sodhi also believes that piracy will see a decline with Netflix content available legitimately. “Earlier, what was being consumed through piracy and illegal downloads will be available legitimately. When legitimate means are available over a period of time, consumers prefer to watch it through legal and fair means,” he said.

Still, Netflix’s entry will not bring in immediate miracles. According to several media analysts, scale and pay models will continue to be a challenge for the OTT players. The year will also see how some companies like Spuul and YuppTV are able to raise capital.  While YuppTV has already raised $15 million in Series A funding, it is planning to raise $50 million in Series B.

Moving to subscription-driven service

While a large part of the online streaming services are free at this stage, everybody realises that the industry has to move to a subscription model. The pay services available in the Indian market are lower at this stage, keeping in line with the cable TV and direct-to-home (DTH) ARPUs (average revenue per user).  BoxTV (owned by Times Internet) and Hooq (JV between Warner Bros., Sony Pictures and Singapore telecom giant Singtel) charge Rs 199 a month. While Hungama charges a monthly price of Rs 249, Spuul offers its premium content for $4.99.

Among the broadcasters, Hotstar (Star India) and Sony Liv are free services while Ditto (ZEEL) charges Rs 150 a month. Sony Liv has just started SVOD for movies and charges Rs 149 per month.

Netflix has decided to come in at a higher price, expecting to mop up the high-end consumers. The streaming video giant has launched in India with a basic monthly plan of Rs 500 for viewing in SD, Rs 650 for HD and Rs 800 for 4K. Many executives of OTT platforms believe the price is too steep for a price-conscious Indian market where cable TV and DTH connections are still cheap.

Comparatively, the cable and DTH customers in the US pay much more than their Indian counterparts. Apart from good content, the high price of traditional TV services also played a big role in Netflix’s meteoric rise in the US.

Gaurav_Gandhi“The US cable TV ARPU is around $60–100 while Netflix’s subscription rates are in the bracket of $8–12. That is a noticeable price arbitrage advantage. The Indian cable TV market has one of the lowest ARPUs worldwide. Netflix’s basic subscription plan is on a par with the premium cable/DTH packs. Combined with high data costs in India, this global advantage looks difficult to adapt to the Indian market,” said Viacom18 Digital Ventures COO Gaurav Gandhi.

OTT player YuppTV CEO Uday Reddy concurs with Gandhi. “If you look at the US, the traditional platforms charge $60–70. Comparatively, Netflix is only $10 so when I am getting premium content at Rs 200–300, paying Rs 500 for on-demand content is on the higher side,” Reddy averred.

Uday ReddyYuppTV has a dual business model of ad and subscription; however, Reddy is going more enthusiastic about the former. “In a country like India, if the CPM rate goes high, that model is much better than a subscription model. Netflix’s subscription price is on a higher side for the Indian market,” he said.

The pricing looks even steeper when one looks at Netflix’s current content offering, which largely consists of international content and a few Bollywood films like ‘Piku’, ‘Singh Is King’, ‘Hum AapKe Hain Koun’ and ‘Maine Pyar Kiya’. “For OTT platforms, it gets interesting only when they have meaningful local programming. Forget TV shows and sports, even with respect to movies, they have very few Indian films, compared to Eros Now, Hotstar, and Hooq,” said the head of an OTT platform.

Netflix is not going to play the mass-pricing role, but will tap consumers who are willing to pay for its service. “With the pricing that they have announced, Netflix can’t go mass.  But however challenging, a pay system is getting built in India,” said a media analyst.

nachiket-pantvaidyaAlt Digital Media Entertainment, a wholly owned subsidiary of Balaji Telefilms that houses the OTT business, has decided that it will adopt a subscription model right from the start. Why will subscribers pay? “Unlike other OTT players, all our content will be original and not available anywhere. We are rightly positioned to adopt the subscription model,” said Alt Digital Media Entertainment chief executive officer Nachiket Pantvaidya.

Yash Raj Films VP of digital Anand Gurnani believes that a lot of people will sample Netflix content out of curiosity even if it means paying Rs 500 per month.

Anand Gurnani“They have come up with pricing that is on a par with their global pricing strategy, but how much adaptability the Indian audience will give them is something that remains to be seen. My gut feeling is that as it is a new phenomenon, a lot of people will sample it, and at the end as we all know content is king. So if there is differentiated content, they may not mind paying Rs 500 extra,” Gurnani said.

Original content

With Netflix’s entry, OTT players are expected to up their content investments. Though Netflix does not have much of India content at this stage, its content budget is huge. In 2016, Netflix will spend $5 billion on content.

According to Viacom18’s Gandhi, the limited licensed content and the lack of original content are the biggest drawbacks for Netflix in India.

Pointing out the other missing pieces from Netflix’s arsenal, Gandhi stated, “Netflix has an impressive English content library – both licensed and original. In the Indian context, they would need to go beyond just their English content library. Yes, Netflix could create originals, but that will take some time. It will be interesting how Netflix looks at their content strategy in India.”

There is no doubt that Netflix will dabble in local content once it manages to get a foothold in the Indian market. Right now, the OTT service will only appeal to niche audiences who are crazy about Netflix’s original programmes like ‘House of Cards’ and ‘Orange is the New Black’.

The local OTT players need to create successful original content. “We will need to spend more than what traditional TV is paying for content right now. Investment per hour will have to be more,” said Pantvaidya.

Other isssues

While new launches are always a good thing, YuppTV’s Reddy feels that a lot of infrastructure-related issues need to get sorted before OTT takes off in a big way in the Indian market.

“Besides the growth of wireless broadband, there is a requirement for landline broadband growth because video will still be consumed on TV. That will also take off with this activity, with a major player coming in. The big experience comes from TV everywhere, not just from mobile,” he stated.

The big screen and wired broadband, which have been Netflix’s calling cards in the US, are missing in India. “Globally Netflix content is viewed primarily through larger screens over broadband connections. The OTT explosion in India is happening primarily on the smaller mobile screens. Mobile network penetration is higher (and increasingly so) than broadband penetration. With telcos launching 4G services and broadband penetration increasing, the availability of price-rationalized infrastructure will happen in the near future. How Netflix adopts its strategy to account for this difference in the current data delivery mechanisms will be crucial to its impact in India,” stated Gandhi.

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