Podcast | Getting to the bottom of OTT media

Amazon Prime Music has entered India. Spotify has plans to enter India. Gaana has just received 115 million dollars in a new funding round and the biggest disruption in the space, Reliance has just executed an agreement with Saavn to tie up with its digital music service Jio Music.

Reliance itself, an OTT company, in this case I mean," oils to telecom" is now one of the leading players in what is otherwise called the OTT platforms and here we refer to Over-The-Top content. On  this Deep Dive podcast, that is precisely what we are going to be looking at.
What is the future of Over the Top applications in India? What are the ramifications of so many different players, local and international, entering the market? How does it compare to the sort of OTT explosion that we have seen in China and what do OTT services have to bear in mind if they need to expand their reach in India?

First up. The news that reigned across the country.
Reliance Industries, on the 23rd of March 2018 executed definitive agreements for the combination of Saavn, a leading global music OTT platform, with its digital music service Jio Music.

The combined entity is valued at over a billion dollars with Gio Music's implied valuation at 670 million dollars. The integrated business will be developed into a media platform of the future with global reach, cross-border original content, an independent artist marketplace, consolidated data and one of the largest mobile advertising mediums.

Reliance has also agreed to invest up to a rupee equivalent of a hundred million dollars out of which the rupee equivalent of 20 million dollars will be invested upfront for growth and expansion of the platform into one of the largest streaming services in the world.

In addition to this, Reliance is also acquiring a partial stake from the existing shareholders of Saavn for 104 million dollars. If that was something that happened on the March 23rd, just about a month ago, Chinese internet conglomerate, Tencent led a 115 million dollar round of funding into music streaming service Gaana, continuing its investments in India after backing domestic companies like Flipkart and Ola last year.

Meanwhile, Amazon Prime music which was launched in the States in 2014 has now been launched in India as of the 28th of February. It comes as an add on to Amazon's video streaming service and is being offered as a part of its Prime service here in India.

And as of mid March, Spotify has finally announced that it is coming to India. The Swedish company is looking beyond the US and Europe as it eyes, India, Russia and Africa in the race for global music streaming dominance. The announcement was made during its Investor Day event held in New York. Operating across 65 countries in the world with already 159 million users including 71 million premium subscribers, Spotify has almost become synonymous to a lot of international audiences as the place to go for music streaming.

In India, it is already entering into a crowded space but one that is teeming with potential.

With increasing internet penetration and cheap availability of data, content has become the next big thing with audio and video dominating consumption. Media consumption patterns and ad spends across the globe have been gravitating towards digital media. A study by

Deloitte, for example, says that online music users in India will grow to 273 million by 2020 largely driven by the youth. Also the digital music industry is expected to reach 3100 crore rupees in revenue by 2020 and all these players from local to global want a slice of that pie.

On top of all of these names that I mentioned is Google and its Play Music service that is already on as also Apple Music that is available too in India. So it is a crowded market already in India with some of the biggest brands in the world and now Reliance's juggernaut Jio that just keeps rolling on has just made things even more interesting.

Simply because Mobile Network Operators or MNOs and Over The Top service providers, that is OTT service providers, often find themselves at logger heads. Established mobile business models have been influxed as OTT players have introduced content delivery platforms that utilise the network operator's network without sharing revenue.

As a result of this, network operators have found themselves supporting surging data volumes without the ability to effectively monitise it, often thanks to 'all you can eat' data plans which a lot of us in India are already beginning to have. As a result , each has begun operating in a fragmented closed space that is a walled garden if you will, apart from each other and a return to the business models of 10 years ago.
But things are changing and the mobile ecosystem has now reached a crucial tipping point with MNOs and OTT players now moving from competition to cooperation. Airtel's Wynk and Reliance's Jio are prime examples of this.

In the crowded OTT market, consistently good quality of service, ease of use and payment convenience are crucial to delivering an excellent end user experience and crucial to ensuring the success for the OTT. MNOs are in a unique position to help solve all these challenges. With MNOs, I mean mobile network operators like Reliance or Airtel. First of all, the network operators own the network infrastructure, empowering services to connect to anywhere. Second, they already have a strong customer relationship since they provide the handset, the mobile number, oversee the billing process, ensure the quality of experience that meets the needs of the end user. I cannot possibly underestimate the importance of this comprehensive end user knowledge. It enables the MNOs and those partnering with them, for example Saavn in this case, to target new services at the particular end user that they will find of most interest and that can rapidly drive new revenue streams.

This knowledge is crucial to differentiating one OTT offering from those of the rivals without this network infrastructure and end user access in a crowded market place.

Let's also look at OTT services involving video. Major video streaming platforms like Prime and Netflix have committed 2000 crore rupees in the battle for eyeballs in the Indian market. With Jio bolstering video content consumption like never before, the timing could not have been better. Netflix plans to spend 7 to 8 billion dollars in creating original content in 2018 up from 6 billion dollars in 2017. Prime on the other hand has roped in big shot directors like Vikramaditya Motwane, Prasoon Joshi, Zoya Akhtar for as many as 17 original series in India.

My own movie watching has drastically changed in the course of as little as 3 to 4 years. These days, I hardly go to the cinema. The film I most wanted to watch in recent times was Annihilation and it was streamed on Netflix a few days after its release. Padmavat, erstwhile Padmavati was a film that made all kinds of noise and within 2 months of its release was already available for streaming at an acquisition of about 20 to 25 crore rupees.That amount of money spent should tell us the intent of OTT players in India and the change in behaviour of the Indian consumers. I may well be in the minority but I will be part of the large majority in days to come.

The question is, will OTP platforms hurt theatrical collections of movies in India and impact viewership even further on television which is already hit by on demand content platforms? Which is precisely why we also take a look at what's happening in the television world.

Statistics underline why OTT is fast becoming the primary medium of entertainment consumption for Indian viewers. Over 65% of the 450 + million internet users in India are currently mobile only and the country is adding 6 million new internet users every month who are exclusively accessing digital connectivity on a mobile phone. Indian internet user number was 27 million in 2011 and smartphone users was a 120 million in 2011. By 2020 the number of internet users in this country is expected to go to 640 million and the number of smartphone users as much as 700 million by 2020. And that is a rise from 120 million users in 2011 in just a span of 9 years. 120 million to 700m smartphone users and 27 million to 640 million users of internet. Well, that is all well and good and the number of internet users is increasing and the number of mobile phones and smartphone users is also increasing. But what about the quality of the internet itself? Is it fast enough? Well, not quite there yet and that is something we will consider in the last part of this podcast.

4G market in India was as little as 4 per cent in 2015 but in 2018, it is already 346 million. 4G mobile data traffic was 4.2% in 2015 but now it is as much as 58.4%. Even though, the major proportion of wireless Internet subscribers are 2G users, the adoption of 4G is gradually increasing and now 3G or 4G constitutes over 50% of the overall wireless internet user base. And what are people consuming? Well, videos and music. Conventional television viewing has decreased from as much as 50% in 2010 to 40% in 2016. While there has been a rise in short clip consumption from 8 or 9% to as much as 20% in a span of 6 years. Downloaded movies are on the rise as also streamed services like movies or television series on OTT platforms.

And if the old belief was that the average internet user was an urban, mid income, mid aged person, well, that is changing rapidly. India is estimated to have 215 million rural internet users while non metros are in fact driving 60% of the overall e- commerce growth. Ask any media company and they will be telling you that Tier 2 and Tier 3 cities are the growing and expanding audience that needs to be catered to. Nearly 43% of internet users are non English, a number which is estimated to grow to 62% by 2020. This could also see a tangible increase in regional language based content available on digital medium as more and more OTT platforms and production houses develop entertainment tailored to meet the specific requirements and sensibilities of their regional audiences.

A Google report with BCG has already shown that content consumption and time spent is as much as 63% for Hindi viewers, 30% for other regional languages and only 7% when it comes to English. Consumption of regional news is also significantly on the rise. Dainik Bhaskar which is the largest regional digital news player in India has 2 billion page views. Half of one India's users come from Tier 2 and Tier 3 cities like Pilani and Haridwar etc. Dailyhunt has 3 billion page views every month with 95% of traffic for regional content.

Vikatan

which is a Tamil magazine, has 1.5 Lakh views everyday and 200 million page views every month so the opportunity for growth is in the regional space.

Currently 45% of the users consume regional language content and this percentage is expected to increase with the growth of internet users with digital penetration expanding and Gio contributing in no small measure to penetration in Tier 2 and Tier 3 cities and rural areas. This consumption number is definitely going to increase and that is one of the considerations that OTT providers have to bear in mind as they enter in droves into the Indian market.

India is a large and differentiated market with wide disparity and different levels of access. Users can be categorised into three segments. Media Dark, Regional Vernacular and Urban English. To leverage this varied set of user needs, differentiated and innovative product offerings have to be launched for consumer segments.Now, a large portion of the Indian population is still Media Dark and penetrating into this segment has been utilised by some players like Hindustan Unilever and Kan Khajura Tesan platforms which did reach out to them. Currently 80 to 85% of the Indian population is thought to be Media Dark. By 2020, that number is expected to fall to as little as 10%. And the second category that I spoke about , Regional Vernacular consumer segment? Targeting this local or vernacular language speaking audience is crucial by creating specific offerings on traditional as well as digital platforms which is something Dainik Bhaskar, News 18 and Vikatan are already doing.

And the Urban English consumer, that is the third segment, which is already consuming a lot of entertainment via the internet could be bolstered by offering an even wider variety especially snackable content and opinion driven content. So these are some of the challenges and points that content strategisers across these platforms have to bear in mind when they enter the Indian market.

So as some of the biggest names in the media industry across the world are entering the Indian market, what are some challenges they are facing and how could they be overcome? And that is precisely what we will look at this 5 point challenge strategy segment.

The first challenge:

Catering to the burgeoning Tier 2 , Tier 3 and rural population. The numbers I have spoken to you about clearly indicate that the growth of media consumption is going to be in these segments. And the challenge for the content strategy teams across OTT platforms, is to cater to them specifically. In this regard, what is the strategy here? Digital content produces can look at aggregating or producing vernacular content to capture the next set of users and some work is already happening here with a lot of major players announcing tie ups with regional and small labels to expand their library. And video content producers are producing a lot of snackable content which was earlier thought to be an urban domain but is now trickling down into the rural space especially through WhatsAppable video formats which are on the rise and looks set for a further steep rise. So that is challenge number 1, catering to regional audiences and how to overcome the barriers that already exist .

Challenge number 2:

We still are dealing with slow internet speed in the country. In a report that Ernst and Young published in 2017 about digital opportunity, this was one of the problems they brought out. India is still plagued with very low internet speed which continues to inch up but are significantly lower when compared to benchmarks globally. Internet speed have witnessed a 29% year on year growth and have reached an average of 2 Mbps but compare it to the 10 plus Mbps that we see in major economies and developed countries like America, Canada and Japan and we know what the lack here is. And how does one overcome it? Well, all the components of the digital ecosystem would have to work together to iron out the challenges of low internet speeds. Newer compression technologies, innovations like adaptive streaming et cetera have to be developed here to mitigate the challenges which are caused by slow internet speed in India.

Challenge number 3:

Low monetization opportunities. I spoke earlier about MNOs and OTT's being at loggerheads because network operator services have had to support surging data volumes but until now did not know how to monitize it. The average revenue per user in India is extremely low as compared with other developing countries. Add to this the fact that consumers are not willing to spend on digital content .In fact as it turns out, less than 1% of total internet users are currently paying for legal content. For investors, this is a huge deterrent and that is a challenge OTT platforms are facing in India.

And what are the ways to solve this? Well, subscription packages and average ticket size of transactions have been reduced to lure consumers to pay for sampling the content. Pricing strategies which are innovative and accessible and understandable to the general jantha and compelling alternatives have been introduced to convert non paying users to paid users but that is a huge uphill task and that is something that the OTT providers are already discovering. Deep discounts and cashback schemes and another incentives have also been introduced and only time will tell if they will be successful in converting the non paid users to paid users.
Challenge number 4:

Piracy. Piracy is a huge problem not just in the digital media industry but across different industries. There have been weak IT regulations and even more ineffective enforcement and that has discouraged players to produce original content. If we expect the digital media space to grow in India, we should be able to produce original content but there is the Catch 22.Original content producers say that there is rampant piracy and there is point producing any original content. And how can this challenge be overcome? The strategy would be to adopt cost-effective technology to curb piracy. Why do people pirate things? Because they find it too expensive to get the original content. So if you start adopting cost-effective technologies, that could be one way of challenging piracy . And the Indian government's focus on the national IPR policy is expected to create significant new market opportunities for IPR holders. And finally the challenge of online payment. One of the primary reasons which has impeded the growth of subscription and pay per view revenue models is the hassle that the consumer has had to face while making payments on digital platforms. Even when they are willing to pay. So first of all there is only 1% of the internet using population that is willing to pay for entertainment and even among the willing to pay population, there are hurdles when it comes to the ease of payment on digital platforms.

So this is been attributed to low credit card penetration, fear of using net banking and credit cards online due to security threats and a general lack of experience that the large portion of India feels about transacting online. A strategy to overcome this would be an integration with payment gateways, mobile wallets which have increased in the recent times especially with Paytm and other payment mechanisms which have reduced the friction faced while making online payments.

So we started with what what was one of the biggest disrupters in recent times, that is the Jio Music and Saavn merger and we took some time to explore some of the challenges that OTT platforms face in India. But we end with the Reliance Jio symphony as Venkat Ananth calls it on the Ken. Because of this merger overnight, Saavn has become the number one music streaming service in India pipping Gaana even with its 115 million dollar investment from Tencent. Because of this merger, Saavn and Jio Music should have a combined user base of 33 million ahead of Airtel owned Wynk with 21 million and Gaana with 17 million. Saavn also becomes Reliance Jio's first global product with a subscriber base among the Indian diaspora in the US and the UK among others. This also marks the first time that Jio has stepped out of its walled garden. And what is a walled garden? it is a term that was coined by John Malone who started the company called Telecommunications Inc which was later acquired by AT&T in 1999.

The term,' Walled Garden' refers to a limited set of technology or media information provided to users with the intention of creating a monopoly or a secure information system. It also refers to mobile phone platforms and applications that can be accessed on a given wireless network. Now what is new about this announcement and what is unprecedented for Jio is that it is no longer hiding behind a Walled Garden. One had to be a Jio mobile subscriber to access Jio Music earlier but that is no longer the case. Saavn is accessible to anyone who wants to use it.

In addition to the Saavn merger, Jio has been on somewhat of a shopping spree much like Amazon. In July 2017, it bought a 25% stake in the media company Balaji Telefilms for 413 crore rupees and that gave them access to content produced by Balaji for its value added services on the Jio network like Jio cinema and Jio TV. Altbalaji which is Balaji telefilm's own OTT service also entered into a strategic partnership with Reliance Jio to make its original content available on Jio's digital platforms. Also remember, there's a lot of regional content there and that did not end there because it comes to our own doorstep. TV18 which is a subsidiary of Network 18 owned by Reliance paid 20 million dollars to buy a 1% stake in Viacom 18 to raise its shareholding from 50% to 51% and then Reliance also acquired a 5 per cent stake in the film company Eros International for 48.75 million dollars and has announced the setting up of a thousand crore rupee media fund with Ero's Indian subsidiary Eros International Media to jointly produce and acquire Indian films and digital originals across all languages.

So Jio, according to many analysts is trying to be a one stop shop for all kinds of entertainment, this time, music, with the branding of Saavn incorporated. Many sources have also gone on to say that Jio is looking at a content supermarket model , quote unquote, not just for Jio TV but with app in app partnerships like the ones it already has with Hotstar and Altbalaji. Venkat Ananth on the Ken piece that he wrote says, "Think about it like this. Jio as a pipe where its users get accustomed to having the best, most recent content on their smartphone pretty much what Netflix did to movie studios.

So what does this move mean for the larger market space? Well, Venkat in his piece seems to think that the Cola Wars are here. Now one mega entity in the form of Jio Saavn is created and there is already another mega entity in the form of Gaana. The two of them are obviously going to be at loggerheads trying to acquire the next user with as much spending as can be done with aggressive marketing techniques and customer acquisition strategies. If we see Gaana sponsoring one music festival, it's likely that Saavn will sponsor another. The interesting thing to remember is that two of the biggest players in the music streaming business in India are homegrown players. There is Jio Saavn and Gaana in a crowded market place with some of the biggest names in the world like Amazon, Google and Apple already jostling for space. On one hand, it is heartening to see that it is the home grown boys that are fighting it out against each other but on the other, given the challenges that OTT platform spaces are facing, it will be interesting to see in the months and years to come, how it all plays out.