OTT players gung-ho about new year, expect massive adoption

Rising smartphone sales, falling data tariffs, 4G rollout and improvement in payment gateways have boosted the fledgling over-the-top (OTT) industry in 2016 and the trend is likely to continue next year.

OTT is the delivery of film and television content through the Internet, without requiring users to subscribe to a traditional cable or satellite.

"Affordable smartphones, increasing Internet penetration and greater data affordability are the key triggers that boosted OTT consumption in the year gone by," Archana Anand, head of digital at India Z5 Business that operates Zee's digital offerings, Ditto TV and Ozee told PTI.

Echoing similar views, Hotstar CEO Ajit Mohan says, "2016 was when consumer started embracing mobiles as their primary screen, whether for drama, movies or sports and growth we have seen in the past few months is a testimony to that." Hotstar, launched in February 2015, has been clipping at 40 per cent in the last few months, he claims.

India currently has around 220-250 million smartphones and is expected to touch more than 500 million by 2020.

As per Frost & Sullivan research director Vidya S Nath, OTT video market was nearly USD 210 million in 2016, driven predominantly by advertising and the market is likely to grow at a CAGR of over 80 per cent till 2020.

Market also saw entry of global players like Netflix and Amazon Prime Video in January and December, respectively, and this is likely to be a catalyst for rapid adoption of OTT.

"We believe industry is growing fast with over a 110 million customers and over 170 million broadband users. With rising smartphone sales, growth in video intake, falling data charges, and rising data speed, we feel the opportunity is now," Amazon Video India country head Nitesh Kripalani said.

Amazon Prime Video launched its services a fortnight ago and Kripalani claims that there is positive results both in free trial sign-ups and paid conversions.

"We believe Prime will continue to be the top seller on Amazon India for the next year or so, and we believe customers will not only adopt the service but also engage with it," he says.

Despite the broadband penetration, varying levels of broadband access and affordable data tariffs continue to remain key challenges for players in the OTT space.

"Even though internet user base is rapidly growing, the country is still below 30 per cent internet penetration, with wired broadband subscription at less than 20 million and speeds amongst the lowest in Asia Pacific region," KPMG India director for deal advisory and media entertainment Girish Menon said.

He also pointed out that only 14 per cent of broadband connections have above 4Mbps speed, while the average broadband speeds is only 2.5 Mbps. This is a fraction of what South Korea (20), Japan (15), China (4) offer.

Some OTT players have tried to mitigate infrastructure challenges with features like less data usage, offline viewing and Hotstar which claims over 50 million users a month, is also working on peer-to-peer sharing.

"We've features like download and efficiency of data streaming and we are also working on letting people share content even if they are not offline. We are also planning peer-to-peer sharing, says Hotstar's Mohan.

Creating original content is expected to gather steam

in 2017, with several OTT players tying up with many production houses for exclusive content for their viewers.

"Content, especially original content, will remain the key differentiator, and regional content will be critical for success," says Grant Thornton India partner Raja Lahiri.

Agreeing with him, Sony Pictures Networks India EVP and head of digital business Uday Sodhi says, "We expect original content is going to become a niche where more people are going to drive investments. This will drive people to OTT.

We will see original content emerging in a big way." Viacom 18's digital platform Voot has 15 million monthly active users since its launch in March and Viacom18 Digital Ventures COO Gaurav Gandhi says that as TV content becomes more mass in nature, 10-20 million urban audience would shift to OTT to consume content they can relate to.

Amazon Prime Video has announced 18 original Indian shows with the first to be launched in the Q2 of 2017, while Hotstar, which has largely shied away from originals is also planning a few original shows in the next six months.

So far, OTT space has largely been driven by the urban areas but experts feel it is likely to change soon.

"Based on our estimates nearly 75 per cent of OTT consumption is driven by the urban population. But from 2017 this will be different given rising broadband user base in rural areas on the back of the government initiatives such as Bharatnet," says Nath.

Agreeing with her, India Z5 Business' Anand says, "We have observed a 60:40 ratio in content consumption from metros vs small-town markets. Digital media intake in smaller markets is being driven by rising smartphone use and affordable data pricing. As small town people and rural areas enter the digitalisation age, demand for regional content will rise." Industry players have so far experimented with different business models like free, freemium and premium and with digital payments and mobile wallets gaining momentum, it is likely to improve the infrastructure for subscription-led companies.

"Our basic belief is that content has to be paid for.

When people see value in what they pay for, they tend to pay," says ErosNow business head Zulfikar Khan.

"But the bigger issue is how do they pay. Now with wallets coming through we are seeing an improvement in infrastructure but otherwise there is a huge challenge. In the long run, people will have to pay for content otherwise the business model is not sustainable," he adds.

ErosNow, one of the domestic players to start with subscription-led services, has 2 million paid subscribers.

Sodhi of Sony Pictures Networks that operates Sony Liv on a freemium model, says, "If there is compelling content it is easy to pay for subscription. I am sure people will choose premium payment options."

As per Frost & Sullivan, next three years of OTT video will be driven by ad-supported and freemium business models.