During the early days of satellite television in India, broadcasters had to partner with local cable operators and pay them a hefty carriage fee in order to reach millions of TV households. The broadcaster-distributor partnership became more formal with the onset of direct-to-home services, while carriage fees became more structured, under-reporting disappeared and ARPU increased, making the partnership profitable for everyone. In recent years, the action has shifted to videostreaming platforms or what are called over-the-top (OTT) content services. While the core game remains the same – since distribution remains critical for all content creators – the players have changed.
OTT services started gaining popularity in India in 2018 and have since been witnessing a growth in adoption. The Covid-19-related lockdowns last year further accelerated the growth of OTT players in India as consumers turned to streaming services for entertainment. The India Brand Equity Foundation estimates that paid video subscriptions increased by nearly 30 per cent to 29 million in the March-July 2020 period, as more Indians started paying for streaming entertainment. Moreover, OTT operators continued to explore new ways to attract and monetise services.
One of these strategies has been to partner with telecom operators to bundle content offerings and woo customers. This has not only resulted in an increase in the country’s mobile data consumption, but has also caused a significant shift in users’ video-viewing habits, creating a demand for original India-focused shows and laid the foundation for a robust digital content ecosystem projected to be worth $5 billion in the next five years.
The telco-OTT partnership
It all started when Reliance Industries Limited (RIL) acquired a 25 per cent stake in Balaji Telefilms and then partnered with ALTBalaji (a subscription-led OTT platform) under a content sharing deal in 2018. ALTBalaji was required to make its original shows available on Jio Cinema and Jio TV, enabling Jio’s entire audience (160 million then, now 280 million) to enjoy their content. Following the Balaji deal, RIL turned its attention to Eros Now, another home-grown OTT service run by Eros International (a traditional movie producer and distributor). RIL acquired a 5 per cent stake in Eros to build and grow businesses around the content ecosystem. Following the deal, Eros Now’s multi-language entertainment library was made available on Jio TV and Jio Cinema.
Taking Jio’s lead, Airtel partnered with Amazon to offer one year of Amazon Prime membership to all Airtel Infinity post-paid customers, providing over 300 live TV channels and 6,000 movies and shows. Airtel also extended these benefits to its V-Fiber broadband customers, giving wider access to these services. Airtel also bundled its Netflix service with three-month post-paid plans for a limited period. Moreover, it signed a partnership deal with Hotstar to make Hotstar’s content available on Airtel TV -over 100,000 hours of content across live sports, movies and TV in nine languages – for free.
Vodafone, too, started offering a two-month subscription to Netflix and Amazon Prime for free to its RED post-paid customers. It offered a range of content through a single access point, Vodafone Play, to reduce not only entry barriers but increase convenience for end-users. Moreover, Vi collaborated with Hungama to launch a pay-per-view model for premiering digital films from Hollywood at a one-time cost. The importance of telco-OTT partnerships was further solidified when state-owned Bharat Sanchar Nigam Limited announced a one-year free Amazon Prime subscription for its broadband and post-paid customers.
Win-win for operators and OTT players
There was a time when value-added services constituted a major source of revenue and a competitive advantage for telecom companies. Now, telecom players have turned to OTT platforms to replace outdated value-added services. The association with telcos is a win-win for OTT platforms and telcos alike. It helps OTT players gain market share by increasing their advertising video-on-demand and subscription video-on-demand numbers, while telcos gain revenue per user by consuming more data.
Since most OTT players are losing money, partnering with telcos is helping them generate revenue and grow their subscriber base at the same time. Despite the fact that less than 1 per cent of 225 million OTT viewers pay for content, analysts feel that operators with their estimated 425 million data subscribers provide a huge potential to reach viewers not covered through these platforms.
Moreover, bundling OTT services has benefited operators through reduced churn and higher ARPU due to increased viewership of paid content, with Indian mobile subscribers now willing to pay a slightly higher price for these services. In addition, operators have valuable customer data that OTT platforms can use to tailor or match their content with their audience base. This is valuable data that can assist OTT platforms in marketing and refining their offerings.
Another reason is that mobile phones provide the easiest access to OTT content among all smart devices. Anyone can access content whenever they want, instead of being at home in front of a device. By connecting other smart devices to the same service, such as smartphones, smart TVs and gaming consoles, users can easily continue to stream content from one device to another. It makes sense for OTT platforms to partner with telecom operators to tap into their mass bases of smartphone users. With this access, OTT providers will be able to provide users with an access point to their content and a seamless experience of content consumption.
Moreover, partnering with telecom operators allows OTT platforms to overcome one of the biggest challenges in the industry – having to pay separately for each OTT platform, which is not appealing to most consumers. When partnering with a telco, billing and payment are handled by the telco through direct carrier billing. This allows OTT players to focus on what they do best – finding and developing the best content for their audience.
According to Counterpoint Research, telecom operators pay OTT platforms like Zee5 for their content, and the payment terms are based on how much traffic they drive. OTT players usually have a defined budget and viewership target. In general, if the number of users accessing the platform exceeds the set target, the telecom operators will pay them extra for the additional users. Pixights Consulting states that telecom is one of the cheapest and most legitimate ways to get new OTT subscribers. As OTT platforms merge with telecom operators, the viewership of ad-supported content goes up, adding to OTT players’ advertisement revenues. Alt-Balaji, which has used this partnership model, gets the majority of its subscribers through telecom operators.
The way forward
As per the 2020 EY-FICCI media and entertainment industry report, the Indian telecom industry will become the primary platform for content distribution and consumption in the years to come. The market is expected to grow to $4 billion-$5 billion by the year 2025.
OTT and video streaming platforms in India may be expanding, but they are far from being profitable. Without deeper partnerships with telecoms operators, OTT players in India face a challenging future since the majority of India’s 600 million internet users consume free, ad-supported content.
For instance, Netflix launched a mobile-only Rs 199 monthly subscription in India in 2019 and appears to be testing an exclusive Rs 349 subscription for households that do not have TV sets – a significant percentage of India’s population.
Going forward, OTT-telco partnerships in India should move from simple bundling to a strategy that enables deeper collaboration in order to grow sustainably. These strategies can involve joint product development and delivery of co-branded products as OTT players relying only on their telecom partners for distribution and new user segments are becoming increasingly unsustainable. Operators now package access to a variety of OTT platforms with their own telecom services, effectively commoditising these services. In addition, OTT players can benefit from the influx of new audiences from Tier 2 and Tier 3 cities as well as older adults, which can allow them to reach a broader audience.
By Anjali Kumbhar