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AVoD fuels Chinese OTT explosion

Replication can be a form of flattery and it is certainly uncanny how similar predictions of both OTT revenue and subscription growth in Asia Pacific made by Digital Research in its latest report are to numbers we published over a month ago in our forecast, The rise in SVoD viewing to swamp traditional TV by 2023. We hope this makes them more likely to be right, rather as a weather forecast is said to be most reliable when all the major global forecasting models are aligned. But it could also reflect the strength of our arguments underlying the numbers, which have been widely reported in the five weeks since that report was published.

The reports had different scope, with ours comparing SVoD to legacy pay TV globally, while Digital Research was looking at all of OTT but only in Asia Pacific. The reports therefore intersected over SVoD in Asia Pacific and to an extent AVoD since that is such a major driver of OTT in the region’s leading markets, notably China, India and to an extent Japan.

The main points common to both reports are that the Asia Pacific market will be highly skewed towards China, which we predict will amass 245 million SVoD subscribers by 2023, some 72% of the total region, with India languishing way behind on 41.7 million and the rest nowhere. Indeed, over that last point we do differ from Digital Research, which predicts India and Japan will be neck and neck on 31 million each by 2024. We do not see Japan getting above 10 million by then, with AVoD ahead despite that being an affluent country.

We largely agree with the predictions about AVoD booming in Asia Pacific, noting their call for the total value of that to pass $25 billion by 2024, with China accounting for two thirds of that at $16.6 billion. We think they have overcalled the SVoD value at $19 billion, with $16 billion closer to the mark by 2024, probably because they have overestimated ARPU, which will remain chronically low in both India and China, which dominate the numbers.

In fact, as we pointed out in our report, with the average subscription just $2 to $3 a month in China and even less in India, Asia and Europe will be about level for SVoD revenues by 2023, despite the former having far fewer subscribers. a region dominated by extraordinarily large AVoD streaming numbers.

The main point of our report was the prediction that globally the number of ad free SVoD will overtake ad-supported pay TV by number of hours watched by 2023, with obvious implications for business models of brands as well as operators. Asia Pacific is something of an outlier here given that ad supported viewing will remain dominant and grow by the same percentage as SVoD. This does depend somewhat on the economic and demographic outlook, given that SVoD in China for example is confined to the upper middle classes, which have shifted to content enriched SVoD services, away from AVoD.

We also highlight that while China and India are strikingly similar in market dynamic, with the majority being allergic to paying for content, there are important differences that must be tracked to modify forecasts over the next few years. China is more affluent per person and also exerts tight censorship over content and control over foreign business licensing, while India is much more open and therefore interesting for overseas broadcasters and start-ups seeking to enter a huge market.

However, India does require local knowledge and presence for success. While the strongest OTT player there is Fox-owned Star DTH broadcaster Hotstar, shortly becoming part of Disney, through its purchase of Fox assets, it has strong local roots put down over several decades, as well as the crown jewels of rights for cricket, the country’s dominant sport.

China does though present opportunities since some of its large online video sites, especially Baidu’s iQiyi, will cut deals to resell non-Chinese content within their services. Netflix and some of the major US broadcasters have already exploited this avenue.

The big three for AVoD in China are Tencent, Baidu’s iQiyi and Alibaba’s Yokou and a substantial number of China’s 800 million internet users in China, or at least out of the 75% of those regularly watching video, already subscribe to all three. The country’s infrastructure is improving rapidly and that will encourage many of those to take out an SVoD sub over time, but it will be just one and that will be their lot. It will be through these conduits that foreign content will be channeled.

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