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HomeArticlesIs India Cutting the Cord? OTT Impact on Pay-TV revenues
Friday, 12 October 2018 05:26

Is India Cutting the Cord? OTT Impact on Pay-TV revenues

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Choice of content, various price options and offers, and availability for unconventional content are the few factors that are shaping the new markets. These trends will have a significant impact on pay-TV markets including DTH and Cable TV revenues.

With the onslaught of cheaper smartphones and falling data rates, over-the-top (OTT) content is ruling the chart not only in urban but also in rural India. The smartphone has liberated the viewers as everyone can consume the content of their choice instead of watching the same thing on a TV set. Mobile phone is everyone’s individual screen.

With the arrival of several regional OTT platforms, the viewers have got more reasons to stick to their smartphones instead of coming back to TV. The leading global OTT players like Netflix and Amazon Prime Video changed the landscape altogether and redefined how people should consume the content. Then the massive investment by most of the video-on-demand (VoD) service providers on originals took away the last fortress from TV. 

According to a Deloitte technology, media and telecommunications report, OTT players are heavily investing in creating and distributing original programmes in Hindi and regional languages. The report says that ` 2,500-3,000 crore has been set aside for OTT services in the country especially for original content production. The popularity of original series like ‘Sacred Games’ has affected the revenue of pay-TV including the direct-to-home (DTH) and Cable TV.  

As per the Ficci-KPMG report (2017), “Urban consumers have been early adopters of video, especially in the age group 15-34, which constitutes 70-75% of the total Internet base. With on-demand accessibility, aggressively priced high-speed 4G data services, and a latent demand for differentiated content, OTT video-on-demand (VoD) services have seen an upsurge in the last one year”.

According to PwC’s Global Entertainment & Media Outlook 2018-2022, India’s OTT video segment is expected to enter top 10 largest markets by 2022 with a CAGR of 22.6%. In the next four years, around 80% of that market will generate revenue from paid  subscriptions. As the battle for eyeballs intensifies in the highly-competitive OTT media industry, many players like ZEE5 are launching numerous originals. 

Launched by Zee Entertainment Enterprise Limited (ZEEL) in February 2018, ZEE5 will launch over 90 originals in the next 18 months aimed at monetising the growing demand for premium content in the country. 

The cut throat competition caused by slashing subscription prices and strong content offerings by OTT players such as Netflix and Amazon Prime besides homegrown contestants like Hotstar, Voot, Eros Now, and AltBalaji has made the consumers free from all bondages that existed earlier with Cable TV and DTH. 

The report By PwC tells that OTT video revenue, which hit `2,019 crore in 2017, is expected to reach `5,595 crore by 2022.


Freemium model & telecast of new films: 

Another tool used by the OTT players which is known as ‘Freemium’ is also helping them to wean away viewers from DTH and Cable TV platforms. In Freemium, OTT players offer both free and premium content, catering to a mix of audiences. 

Telecast of latest movies straight after theatre release and before airing on television is another way of eclipsing the popularity of TV. Aided by a large library of Hindi and regional content across several languages available them, the OTT platforms have all the wherewithal to win the new audiences. 

Choice of content, various price options and offers, and availability for unconventional content are the few factors that are shaping the new markets. These trends will have a significant impact on pay-TV markets including DTH and Cable TV revenues.


Pay-TV under massive pressure: 

The Pay TV services market is reeling under revenue erosion as a result of mandates such as digitization, GST, and demonetization which had manifold implications on the sector. 

According to Frost & Sullivan’s Pay TV Services in India, 2017, while active subscriptions in the total market will grow moderately, revenue is likely to grow at 19%, primarily driven by DTH or satellite TV services. The report says that digital cable will continue to grow in Tier 2 and 3 cities and rural India, despite diluting its footprint in Tier 1 cities. 

Aafia Bathool, Research Analyst, Digital Media Practice, Frost & Sullivan, said: “TV in India is characterized by an increase in Free-to-Air channels, HD content, digitized households, and changing viewership patterns. Although India is a price-sensitive market, consumers will embrace the digitization mandate as they experience multi-dimensional benefits and quality enhancements, and become more tech-friendly and mobile.” 

Vidya S. Nath, Senior Director, Digital Media Practice, Frost & Sullivan, added: “The primary challenge for the growth of the India Pay TV services market is low ARPUs, especially in the cable TV segment. However value added services such as HD and broadband will likely help Pay TV operators increase their ARPUs over the forecast period.” 

The cable TV and DTH platforms are battling against several factors outside their control, especially growth in online video viewership and the entry of large telecom and technology companies into the media sector such as Reliance, Netflix, Amazon, etc. These players are aiming large consolidation with mergers and acquisitions (M&A) and are changing to streamline their operations, while targeting a wider viewer base, achieving profitability, and looking for strategic growth. 

In this war for survival against the OTT platforms, it would be next to impossible to gain competitive advantage, though Pay TV operators are capitalizing on a vast dislodged consumer base by offering concessional packages and installment-based payment mechanisms to ensure they subscribe to legitimate services.

There is lack of choice of content on DTH platforms which is forcing viewers to think options like buying an Internet TV to watch online videos from the various OTT video-streaming sites which are now available in India.

The DTH and Cable TV are under huge pressure to cope with the new age demands. The OTT, unlike broadcasting sector, has also not to follow any regulation, as there is none. The arrival of 5G will change the entire spectrum like nothing else.

Also, DD Free Dish is giving private DTH operators a run for their money. It is fast gaining popularity in small towns and villages as more and more TV channels go free-to-air.

Many media groups are launching their own OTT platforms to cash in on the boom. Times Group recently acquired South Korea-based MX Player for ` 1,000 crore to enter the OTT market. MX will be launching its OTT service in October 2018, with over 50,000 hours of content and more than 20 originals.

Karan Bedi, CEO of MX Player said: “There are 500 million smartphones which are now becoming the primary screen for entertainment. And they have the ability to give access to huge libraries and types of content well beyond the broadcast ecosystem.”

OTT players are pushing the boundaries with latest technologies such as streaming video seamlessly despite patchy networks in India. Amazon, for instance, uses High Efficiency Video Coding (HEVC) for its FireTV Stick, which is more capable of encoding video than the current industry standard, H264, and requires less bandwidth to deliver high-quality video streams.


Global Scenario:

According to Simon Murray, Principal Analyst at Digital TV Research, “Cable TV is not the only platform to suffer due to OTT onslaught. Satellite TV and IPTV are also losing subscribers and revenues. Much of this is due to the operators shifting their subscribers to online platforms.”

As per the eighth edition of the North America Pay TV Forecasts report (March 2018), that the number of US traditional pay TV subscribers will fall from a zenith of 100.34 million in 2012 to 90.35 million by end-2017 and down to 80.33 million in 2023. Pay TV penetration will fall from 87.6% of TV households in apex year 2013 to 66.7% in 2023.

The popular phenomenon “cord cutting” is mistakenly assumed as purely a US phenomenon. But it is not, as according to new data from IHS Markit (May 2018), total pay TV subscriptions declined in 13 other markets (specifically Brazil, Mexico, Hong Kong, Canada, Sweden, Denmark, Japan, New Zealand, Norway, Singapore, Israel, Venezuela and Ireland).

With a net loss of 3.5 million subscriptions, the North America region suffered its biggest-ever annual pay TV decline last year. Between 2012 and 2017, pay TV subscriptions fell by 7.1 million in the region. Meanwhile, net additions for Netflix and other OTT subscription video services reached 101.3 million over the same period, with more than 26 million OTT subscriptions added in 2017.

Though, the cord-cutting trend has been most strongly associated with cable TV, but satellite TV is also struggling in several regions, according to IHS Markit report. It declined more than any other platform in both North America and Latin America in 2017, suffering net losses of 1.8 million and 882,000, respectively.

The recent Dataxis report tells that Pay TV and OTT(SVOD) subscribers in SAARC countries is projected to reach 371 million in 2023, growing at a CAGR of 7.4 percent compared to 226 million in 2017. India is the biggest market among SAARC countries, accounting for 81 percent of the total Pay TV and OTT subscriber base.


Remedial measures: 

The DTH firms though have started offering hybrid set-top boxes to their customers. The new connected boxes are aimed to eliminate the need to buy Internet TVs or other streaming devices as the set-top box will offer both linear programming as well as on-demand video such as Netflix and Amazon Prime.  Airtel Digital TV too launched one such box which brings online content as well as a bouquet of satellite channels to your TV. Thesde are the few steps being taken to compete with OTT platforms. 

Cable TV companies like Den Networks Ltd are also taking the battle head-on by launching their own smart STBs and OTT platforms, offering over hundreds of live channels, thousands of movies as well as hours of original programming.

Despite the boom in OTT segment, the days are not ending for cable TV, as CVL Srinivas, country manager of WPP, a multinational advertising firm, rightly said: “Cable TV is extremely cheap and some OTT players are still prohibitively expensive for a large part of the Indian population. If you can launch a service with quality content at a very cheap rate, you may be able to help more people cut the cord faster.”

The government needs to formulate policies friendly to the Cable TV which is already reeling under digitization and GST. The MSOs too need to use the cable to offer various value added services to keep the viewers intact.  

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