India’s OTT market, sized at $2.5 billion (this includes YouTube), went through a major disruption in 2023, as Jio Cinema offered the most premium content—Indian Premier League—free to users. This negatively impacted subscription revenue growth for peers and the industry at large and led to Disney Plus offering cricket World Cup free for mobile customers.
The OTT market in India is currently battling the dilemma between growth and profitability in a price-sensitive market. 2023 was a year of disruption for cricket content, as Jio Cinema used it to build a large customer base for itself. But expect some serious changes in the OTT landscape in 2024 as platforms now look to chase profitability.
Since the advent of affordable 4G service and video OTT in India in 2017, none of the video streaming platforms have been able to reach break-even point, which could lead to some structural changes in this market.
Content cost correction is the need of the hour, as most big OTT platforms are making hefty losses. According to our assessment, the Indian OTT industry’s revenue (excluding YouTube) is $1.3 billion. However, the content cost alone comes around $1.5-2 billion, which is approximately 65-70 per cent of the OTT platforms’ cost base (other costs include marketing, manpower and technology). Thus, one can expect some rationalisation in this area as platforms become selective in their approach towards new shows. There will be a sharp decline in experimentation within web series and a more selective approach when it comes to purchasing digital rights of films in 2024, which will help lower losses.
Consolidation is another big change for the OTT industry, with the Zee/Sony merger and potential talks of RIL/Disney coming together. A merger between these entities will provide much needed respite as these four platforms (Jio Cinema, Sony Liv, Hotstar and Zee5) together command a market share of more than 40 per cent in video advertising (including YouTube). This may shift the bargaining power aggressively in favour of platforms and arrest content costs across various types of content (movies, web series etc).
A freemium pricing model is here to stay for video OTT platforms in India, as we don’t foresee the scale up of pure play video advertising models given that the digital advertising market is fragmented with presence of search, social and e-commerce giants.
Subscription revenue is a sticky revenue stream which will provide a predictable cash flow for OTT platforms and take care of their content budgets. Given the wide variety of audience in India across multiple languages, a freemium model with a mix of free and pay based content augurs well over the long term. OTT platforms may not be able raise prices extensively just as yet, and hence will find innovative means like 1) curbs on password sharing, 2) ad-supported content within pay-based video services, to drive better monetisation.
Regulation is an overhang in a diverse market like India. However, don’t expect blanket censorship as that will stall the growth of digital consumption. Self regulation will continue to exist going ahead too; however, there could be a potential set up wherein content on OTT is constantly monitored and platforms making content hurting religious or minority sentiments may be penalised with hefty fines.
Video OTT has the best advantage of tracking consumption and viewership trends across markets. Netflix recently started sharing data, providing details of time spent on various shows globally.
Transparency from the OTT platforms will increase, as they start sharing selective data around viewership trends. This could benefit 1) advertisers for better ROI and 2) content creators to predict what kind of content actually does well.
All in all, things are poised well for the Indian OTT market, which seems set for strong growth coupled with profitability.
(Karan Taurani is Senior Vice President, Elara Capital, and closely tracks the media and entertainment sector)