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12 September 2019

Indian 500m OTT subs forecast ignores SVoD v AVoD debate

AVoD has been the biggest driver of OTT growth in the two countries India and China accumulating subscribers at the greatest rate by far. This has gone hand in hand with a marked reluctance to fork out for subs, with ARPUs remaining stubbornly far below the global average. Even rising affluence with an expanding middle class seems to have done little to raise ARPUs yet, which is why we are skeptical of arguments put forward by the likes of India’s movie production company Eros International that SVoD is going to sweep forward and overtake AVoD in those countries.

We agree that trend is happening globally to the extent that our research arm Rethink TV has forecast that SVoD will catch up AVoD sometime in 2023 in terms of hours viewed at about 2.7 billion each. This is an astonishing closure of the gap from 482 million hours for SVoD against 4.9 billion for AVoD in 2018, remembering that the figures include legacy pay TV as well as OTT. This represents a continuing swing from legacy pay TV to SVoD in most more affluent nations, especially among the higher income groups there.

But it has been a different story for some emerging economic powers, most notably China and India but also some others such as Malaysia. It is worth therefore examining arguments that these countries will fall in line with global trends. Eros International’s SVoD subsidiary Eros Now is notable in this regard because it has just published a report in conjunction with accountancy and business services group KPMG forecasting an OTT boom in India with subs reaching 500 million in 2023, second only to China’s total by then. The firm does not specify China’s putative 2023 total which we put at around 550 million, nor does it give a breakdown between SVoD and AVoD, but the subtext is that the latter will close in.

Eros Digital’s view espoused by its Chief Operating Officer (COO) Ali Hussein, is that a combination of infrastructure and content trends will stimulate rapid expansion of SVoD in India over the next few years. By his scenario, AVoD will not decline but will stand still and wither on the vine relatively as SVoD storms past.

Hussein identified rising high speed fixed broadband penetration and especially fiber to the home (FTTH) roll out as the first in a series of tipping points towards SVoD. Of particular note are the country’s two big fixed-line broadband players, Airtel V-Fiber and Reliance Jio Fiber, both now offering speeds of 100 Mbps. Reliance Jio is rolling out its Jio Fiber with bundled and multimedia services incorporating free voice and video calling, with basic plans starting at 100 Mbps. Airtel meanwhile has its Xstream Box and a free subscription to OTT packs. Quite clearly the launch of Jio Fiber in particular has shaken up the fixed broadband field in India and provoked a response, so that Hussein is right to predict a rapid rise in number of high speed connected homes in India.

The nub of his argument is contained within his company’s newly published OTT forecast, being that because of sparse and low-quality fixed broadband coverage, video consumption in India has been predominantly via smartphones to date. The report found that 87% of consumers preferred to watch video on smartphones, compared with just 5% for smart TVs, 4% laptops, 2% PCs and only 1% tablets. This varies little by age, with almost the same breakdown among those over 50 as 15 to 24-year olds, reflecting the reality of availability. He attributes the prevalence of AVoD today in large part to the snacky nature of viewing at relatively low quality, which militates against paying for SVoD.

Hussein has a vested interest in promoting SVoD but at a panel discussion in Mumbai held in February 2019 he was supported by Uday Sodhi, head of digital business at Sony Pictures Networks India, which offers both SVoD and AVoD. He argued that as video migrates from mobile-based 4G services to fiber smart TVs more conducive for SVoD, favoring more consumption of longer form video, more people would be willing to pay to avoid ads, especially within movies and TV shows.

But this presupposes that video will migrate from 4G to fixed broadband in large volume. Indeed, Hussein contradicted this argument somewhat by pointing out that his company had released a new package of short form snackable content under the brand “Quickies” aimed at what he described as the growing number of commuter-viewers tuning in while travelling.

This in turn reflects how, while lack of fixed broadband infrastructure has precluded viewing on smart TVs at home in India, smartphones retain the only realistic option for many on the move. Video consumption on mobiles is still rising fast among affluent groups, even where fixed line penetration is high.

Furthermore, while India’s economy is growing fast, its wealth distribution will remain skewed towards a relatively small percentage – if large number – of the affluent middle class. Evidence from other countries suggests that AVoD has appeal among lower income groups and that will remain a very large number in India.

Apart from growing predilection for short form content on the move, the Eros Digital survey highlighted preferences not so different from many other countries, including love for films with more Indians wanting to view these OTT, the importance of original content as a differentiator and innovation in formats on digital platforms.

While these trends are important, they do not automatically favor SVoD over AVoD, with demographic and attitude being the key factors. In fact, the survey identified the need for “innovations in pricing to boost subscriptions”, which is surely a euphemism for low cost. After all, Netflix found it had to break its established pricing floor to gain much ground in countries such as India where even premium legacy pay TV services cost under half its prevailing rate of around $10 a month. Netflix initially brought its subs down to just over $6 a month in India and has now launched a basic mobile-only plan below $3 a month, under a third of its US price, aimed at Android and iOS tablets as well as smartphones, allowing a single concurrent stream in Standard Definition (SD) with no ability to cast or mirror content. Netflix has therefore acknowledged the enduring primacy of mobile in India and that for SVoD to compete, subs must be cut to the bone.

SVoD then will grow fast in India, but it will not displace AVoD as rapidly as Eros Digital hopes or expects, nor will it generate the same revenues as elsewhere. That is why while India may become number two for OTT measured by subs it will only just make the top 10 for revenues.

The story is naturally different in China, where paid subscriptions are already a lot higher and rising faster, set to pass 300 million by the end of 2019, up from 230 million at the end of last year, according to a report by Chinese consultants Entgroup. This we know is being driven by growth in China’s upper middle class, which has shifted to content enriched SVoD services, away from AVoD. But generally, AVoD will continue to boom in both countries, given continuing allergy to paying for content among a large part of the populations, irrespective of whether they view mostly over mobile or fixed services.

Underneath these similarities there are big cultural and regulatory differences, with China exerting tight censorship over content and control over foreign business licensing, while India is much more open and therefore conducive for overseas broadcasters seeking to enter a huge market. However, as the Eros Digital survey correctly identifies, India does require local knowledge and presence for success, while Chinese online video sites, especially Baidu’s iQiyi, are open to deals for resale of non-Chinese content within their services.