Opinion | Amazon’s bet on local language content is a hunt for fresh e-commerce customers

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Outside the US, India is the largest market for e-commerce giant Amazon.  The global e-commerce powerhouse does not want to leave any stone unturned to make the most of this market. Earlier this week, the online market place operator said it will develop more content in different Indian local languages such as Tamil, Telugu and more for its over-the-top (OTT) video streaming platform Prime Video.

On the face of it, Amazon is pushing its OTT Prime Videos with content that’s more relevant to non-English and non-Hindi speaking Indians.  But there are very little profits to be made in the OTT space.

The real target here seems to be reaching the bottom of the pyramid population hoping to convert them into consumers of Amazon’s core e-commerce business over a period.

E-commerce has very limited presence in these markets and Amazon is trying every way to catch them. Besides pushing e-commerce, Amazon has bought Aditya Birla group’s More and is reportedly picking up a 9.5 per cent stake in Kishore Biyani’s Future Retail to reach to smaller markets through the outlets of these retail chains where Amazon, and e-commerce, is non-existent.

A push in video content through its OTT, especially in non-Hindi regional languages, would build awareness and get the e-commerce giant fresh users who could eventually become buyers of the goods it sells through its online marketplace which is part of Amazon’s Prime membership that costs Rs 999 a year or Rs 129 a month.

The reason why Amazon wants to focus on local non-Hindi Indian languages is simply scale. According to a report by Google and KPMG, there are around 234 million local language internet users in India at present — thanks to cheap internet and availability of affordable smartphones (there are 475 million smartphone users in India).

Local language video has audience. For instance, Telugu movie Sarrainodu’s digital premier on YouTube had more than 183 million views (Vidooly study). Now, that’s a number which would catch the attention of any OTT player.

So far, global over-the-top (OTT) video streaming platforms like Amazon Prime Videos and its rival Netflix (still premium in India with subscription starting at Rs 500 a month) have focused on only Hindi. As a result, Hindi online content has grown five times that of English during the past couple of years.

As IAMAI predicts, non-English content will account for around 62 percent by 2020, a substantial part of that being non-Hindi. What also helps is the fact that the number of OTT users doubled from around 1 million in 2017 to 2 million in 2018 and is projected to double to 4 million by 2020 (FICCI Frames). Through this lens, Amazon’s strategy gets some legs.

However, content production requires large investments. On an average, one season, or series, of video costs at least Rs l crore for production. Digital rights for movies come at high cost, sometimes as high as Rs 65 crore a movie (Amazon acquired rights for five Salman Khan movies at that cost in August 2017).

Considering Amazon has committed $300 million for content in India, it would not be much of a hassle for the American e-commerce giant to develop content. But getting users may be tough because it is targeting to turn consumers of free video content into paid users.

Sources of video content, or entertainment content, in these markets (non-metro urban and semi-rural) are primarily cable television and direct-to-home (DTH) television that offer a large number of channels for news, infotainment and entertainment. But average monthly revenue per user for cable television operators is Rs 40-45 in rural areas and Rs 70-75 in urban. For DTH operators, the national average is around Rs 200.

Now, Amazon’s Prime membership costs Rs 129 a month, or Rs 999 a year (that’s about Rs 83 a month). But content would be limited compared to what cable or DTH offer. That’s precisely the reason why Indian OTTs such as Hotstar, SonyLIV and AltBalaji that have been focussing on mostly regional language are still making losses.

Hotstar, which has around 69.4 percent share in OTT market, has managed to convert just 3-5 per cent of subscribers into paid users (Counterpoint Research). For SonyLiv, the conversion rate is below 1 percent. With most of its content being free, YouTube is the most popular video content platform.

While there is demand for local language content, users are not willing to pay. In Amazon’s case, a doubling of Prime membership fees slowed its customer acquisition highlighting the price sensitivity of the Indian market.

Simply put, Prime Videos won’t ensure a return for Amazon unless it manages to turn regional language users into users of its e-commerce platform. Whether the returns from e-commerce will justify the investments in Prime Video, only time will tell.