VoD services through OTT platforms:
The report said that OTT has caused huge disruption in the content consumption space. From an Indian perspective, where having multiple cable connections in a single Indian household is a distant dream, OTT platforms enable individual viewership. By providing the comfort of viewing at one’s convenience in terms of time, place and device, OTT has been a game changer. As opposed to television, where programmes work on a schedule, OTT provides the audience the option to view what they want at any time of the day.
The growth of OTT has given rise to concepts of ‘cord sharing’, ‘cord cutting’ and ‘cord never’. In many mature markets, it has had a significant impact on the growth and sustainability of linear media businesses such as cinema, television and newspapers.
Globally, the OTT market (TVOD+SVOD) is set to grow at a CAGR of 10.1% during the period 2017–2022. During the same period in India, the segment is expected to grow from 297 million USD (19,328 million INR) to 823 million USD (53,630 million INR) in 2022 at a CAGR of 22.6%. With increasing smartphone penetration and lower data tariffs, VoD is showing promising growth. Mobile video advertising (largely AVoD) is the fastest growing sub-segment of India’s Internet advertising market, projected to rise at a CAGR of 32.8% from 2017 to 2022 and to reach 317 million USD (20,641 million INR) by 2022.2 Globally, the industry has recently witnessed a shift in focus from content and distribution to ‘user experience’. However, for a country like India, content, specifically customised regional content will play an important role in driving revenues.
Increasing consumption will be driven by strong Internet connectivity and any operator who manages to provide quality data services will definitely be a strong player in the long run. This will provide a thrust to the growth of the VoD market, the report said.
Impact of VoD on TV:
Television is the largest sub-segment within the entertainment and media industry and will continue to remain so in the near future, said the report. While the Indian television industry is set to grow from 13,314 million USD (8,66,181 million INR) in 2017 to 22,003 million USD (14,33,137 million INR) in 2022 at a CAGR of 10.6%, the global growth average is as low as 1.4%.
This proves that India will continue to ride on traditional forms of entertainment despite the disruption in the industry. Television is one of the most economical forms of content consumption, making it a popular source of entertainment for rural India. The recent merger of Dish TV and Videocon d2h has given rise to the largest pay TV operator in the country. While Dish TV brings in close to 16 million subscribers, Videocon has over 13 million, taking the total number of subscribers of the combined entity to more than 29 million.
Audience measurement has always been a challenge. However, with the BARC coming into play, there has been considerable improvement. Shrinking time between the theatrical release of a movie and its availability on VoD platforms, along with the lower cost of digital rights vis-à-vis television broadcasting rights, is giving VoD service providers an edge over television broadcasters. However, given the lower cost of subscription and deeper penetration in rural areas, from an Indian context, there is a still a long way to go before television gets replaced by digital distribution. This is in contrast to some global trends where the number of VoD subscribers has surpassed that of television subscribers in a few countries and where cord sharing, if not cord cutting, is prevalent. In the Indian context, it would be interesting to assess the potential impact of the ‘cord-never’ generation moving into the disposable income category.
India VoD Trends:
The report said that India is one of the fastest growing entertainment and media territories in the world, with a CAGR of 11.7% from 2017 to 2022, growing from 30,363.72 million USD (19,78,045 million INR) in 2017 to 52,683.15 million USD (34,32,044 million INR) in 2022. It is set to be in the top 10 entertainment and media markets globally by 2021 in terms of absolute numbers. SVOD and TVOD will collectively grow from 296.69 million USD (19,328 million INR) in 2017 to 823.25 million USD (53,630 million INR) in 2022 at a CAGR of 22.6%, with SVOD holding a majority share throughout the projected period.
Hotstar has had a first-mover advantage in the OTT space in India. Other top players in the OTT ecosystem include Voot, SonyLIV, Netflix, Amazon Prime, Eros Now and ALTBalaji. Start-ups such as Arre and YuppTV are an additional presence. With multiple platforms to choose from, consumers are spoilt for choice. However, OTT platforms do not just compete amongst themselves, but also with DTH players. In recent times, there have been new opportunities or areas of growth for VoD services. With increasing traffic in metro cities, the time spent on viewing videos is also on the rise.
Cab aggregators such as Ola have installed tablets inside their cabs with a wide range of curated content for passengers at no additional cost. Globally, the OTT landscape is projected to grow at 10.1% from a base of 36,021.11 million USD (23,46,595 million INR) in 2017 to 58,369.29 million (3,802,467 million INR) in 2022. The VoD market is well established in many markets such as the USA. Though the USA will remain the largest OTT market globally over the next 5 years, strong growth rates in SVOD platforms globally will reduce its dominance.
Global VoD trends:
Cord cutting has been slower than expected, but it is still happening at a much faster rate than in countries like India. In markets like the USA, Internet usage to access television content has increased drastically. However, consumers are also increasingly overwhelmed by the sheer proliferation of available services. On the other hand, the relative lack of pay TV options is comforting for the OTT industry as more and more consumers get inclined towards bundled services. In developing markets like India, television and OTT will continue to coexist in the near future, with television continuing to hold the larger piece of the pie. Although cord cutting is far from becoming a widespread phenomenon in the country, OTT services will ride on the cord-never audience as the majority of the country’s population is under the age of 35.
The coming generations would directly get hooked to VoD as opposed to previous generations, which started with television as the main source of entertainment. While in developed countries like the USA, a majority of VoD consumers access paid content through the largest player, Netflix, in India, Hotstar leads the market, with a majority of its viewers coming onto the platform to watch content for free. India’s immediate neighbour China is the second largest OTT market in the world. China shows a clear trend towards the organic revenue structure as far as OTT players are concerned. There is a clear inclination towards subscription-based models as opposed to ad-based models. Baidu’s iQiyi, Tencent Video and Alibaba’s Youku Tudou dominate over 60% of China’s online video industry. The Chinese regulator, the State Administration of Press, Publication, Radio, Film and Television (SAPPRFT), has ensured that all OTT businesses partner with or pay premiums to one of China’s seven approved licensed providers in order to offer online content through OTT TV.
Regulation of VoD:
Any regulatory framework, the report said, could impact the model of operations, structure of transactions and funding arrangements. As mentioned above, India currently does not have any regulatory framework or an overarching policy on provision of services through OTT platforms. However, certain exchange control regulations would be applicable, as in the case of any other service provider where the structure of the transaction involves dealing with foreign exchange.
The report suggested that regulators should consider the learnings from countries where attempts have been made to regulate OTT service providers and include the best practices while determining the policy framework for OTT service providers in India. Further, regulation of content should be in the form of self-regulation and only from the classification perspective.
GST’s impact on VoD:
An Indian OTT service provider may render services to domestic consumers and to its overseas clients. The supply of services (OIDAR services) to overseas clients will be treated as export of services. Similarly, the subscription revenue would qualify as exports. On the other hand, import of licenses and exclusive rights by the Indian OTT service provider would attract payment of GST under reverse charge in the hands of the licensee (i.e. the service recipient).
However, the taxes paid under reverse charge would be available as input tax credit for the Indian OTT service provider. Further, based on the past positions of the Indian tax authorities in similar circumstances, it is likely that the licence fee paid to the foreign licensor would be considered to be in the nature of royalty and therefore, the Indian OTT service provider would have to undertake withholding tax compliances on such payment. Though arguments could be made otherwise, it would be highly litigative.
From a taxation standpoint, more clarity on taxability of foreign OTT service providers, especially on the fee received from the Indian intermediary for the grant of distribution rights, would be important.
Future of VoD:
With user experience being a key differentiator, technology would play an important role in the coming years. Technologies such as blockchain could enable OTT players to track content assets, avoid contractual disputes and measure digital advertising impact. Piracy is one of the biggest issues faced by VoD platforms and blockchain can solve this issue by tracking the transfer of files over the Internet. In addition, AI and robotics are being deployed to improve user experiences and create a service differential. The ‘skip intro’ feature of Netflix is one such example.
Advertisers need to know if the audience projected by the content distributors is the relevant audience for their products/ services. Advertisers have also raised questions about quality and appropriateness of content during which their advertisements are shown.
Also, mobile video advertising is projected to rise at a CAGR of 32.8% from 2017 to 2022 and to reach $317 million (` 2,064 crore) by 2022.
While the Indian video OTT market is at a fairly nascent stage, the video OTT market globally has entered into the growth phase of the market life cycle. With a CAGR of 22.6% during the period of 2017–2022, the Indian video OTT market is poised to outperform the global video OTT market, which is pegged to have a CAGR of 10.1% during the same period.
The report added that content will be the king in driving the VoD growth story in India and all over the world.