India's Mukesh Ambani streams into race for online viewers as Netflix, Disney+ eye growth market

When billionaire Mukesh Ambani bid only for the live-streaming rights to India's top cricket league matches - passing up the TV broadcast contract - it was a clear message that the future lies with online streaming, not traditional TV viewing, analysts say.

For investors, India holds huge potential as Asia's only full-scale, high-growth streaming market outside China. There's "high headroom for penetration", said Mandeep Kohli, managing director at Boston Consulting Group India.

Consider the numbers: out of India's 1.4 billion people, there are only 102 million streaming-video-on-demand (SVOD) subscribers, according to a Deloitte Consulting report. Some 47 per cent of people in the country are internet users. But that is still far fewer than China where 71 per cent are online, or the US where the figure is 90 per cent.

Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.

Ambani's oil-to-retail behemoth Reliance Industries, and its joint-venture media partner, Paramount Global, paid US$3.1 billion last month for the Indian Premier League (IPL) streaming rights, slightly more than the US$3 billion Disney forked out for the TV rights.

Reliance's focus on getting the digital rights for what's known as India's Superbowl was "a great endorsement of the streaming economy", said Mihir Shah, vice-president of Singapore-based Media Partners Asia (MPA).

The purchase of the IPL streaming rights also gave a huge boost to the sports portfolio of Viacom18 Media, Reliance and Paramount's TV joint-venture which aims to be a leader in developing an Indian "streaming-first" media landscape.

Until a few years ago, middle-class Indians watched sports and entertainment mainly via pay TV. But over the last decade, streaming has created a fiercely competitive digital space that is home to giants like Netflix, Disney+ and Amazon Prime. From two Over the Top (OTT) platforms in 2012, India now has more than 40.

An increasing number of viewers are shifting to OTT, where people use the internet instead of satellite or cable, as the "cocooning effect" of the coronavirus pandemic accelerates. Analysts say India's now at the "scaling stage" with streaming subscribers growing strongly, helped by low-cost high-speed mobile internet. One GB of data costs 6.7 rupees, or about 8 US cents. Also, half of all Indians are under the age of 30, which is considered the internet-friendly zone. By contrast, China, the US and Europe are at the "mass-consumption" stage, with high streaming penetration and viewers subscribing to multiple providers.

Total OTT revenue more than doubled in India in 2020, driven by a lack of public entertainment and extra at-home time due to Covid-19, and nearly doubled again in 2021. While growth rates are slowing, the market will still expand at an impressive 14.1 per cent of compound annual growth rate to reach 210.32 billion rupees (US$2.64 billion) in 2026 with subscription services accounting for 95 per cent of the rise, PwC forecasts. India's scaling "to become one of the biggest video-streaming markets worldwide", said Prime Video senior vice-president Mike Hopkins.

Right now, India's SVOD market is dominated by Disney+ Hotstar with 43.7 million subscribers, estimates MPA, helped by its affordability and strong local material. Content is king in the viewership battle and streaming providers are investing heavily in audience-winning local content.

Amazon Prime Video, which also has considerable local programming, has 21.8 million patrons. Netflix, the big fish globally in paid-streaming TV with 221 million subscribers, is the minnow in India with just 5.5 million members.

Back in 2018, Netflix chairman Reed Hastings forecast the company's next 100 million subscribers would be coming from India. Netflix's failure to get anywhere near that number highlights how it got India's market wrong in pricing and content. "In every single other major market, we've got the flywheel spinning. The thing that frustrates us is why haven't we been as successful in India," Hastings lamented to analysts in early 2022.

To fuel customer growth and be more cost-competitive, Netflix, which this year lost subscribers globally for the first time in over a decade, has slashed its India prices. It cut its mobile-only monthly plan to 149 rupees (US$1.88) from 199 rupees. Netflix also reduced its basic all-device plan price by 60 per cent to 199 rupees.

With fixed broadband penetration at just 8-9 per cent, versus 95 per cent in the US, India's a "mobile-first" market in which smartphones are the default video-viewing screen.

Netflix's second-quarter earnings released last week showed the Indian shift from premium to more mass-market has been a drag on revenues. While Netflix added 1.1 million customers in the Asia-Pacific in the quarter, the India price cuts reduced its regional average revenue per membership (ARM), a key earnings metric, by two per cent from a year earlier in constant currency terms. Without India, ARM would have grown four per cent. Netflix hopes to compensate for the price cuts through larger customer volumes. But to do this it would need to sign up 20-30 million Indian subscribers for customer revenues to be meaningful, MPA estimates.

Netflix's India content vice-president Monika Shergill said the pricing cut was "working very well for us; it's brought in a whole new set of audiences". Netflix's problem though, analysts say, is that Indians still perceive it as too foreign and upmarket. While the company has spent big on Indian content, observers say it needs a more regional focus.

India has 22 official languages and 56 per cent of Indians have a regional-language mother tongue. The share of regional-language streaming viewing time is seen to cross 50 per cent by 2025, eclipsing widely-spoken Hindi at 45 per cent. Netflix and other companies invested US$600-700 million in original Indian content last year, up from US$180-210 million in 2017, but analysts say players will need to spend much more to survive in the congested market in which consolidation is inevitable.

To grow subscribers worldwide, Netflix will be launching advertisement-based video-on-demand (AVOD), a cheaper ad-supported plan, in early 2023. Indians are notoriously price-conscious so this offering could be a boost to Netflix's subscriber numbers, analysts say. Hastings had always said he loved the "simplicity" of the pure subscription model. But once Netflix set up in emerging markets like India, it was bound to pivot to AVOD which can be free or priced much lower than SVOD, say analysts, who forecast a hybrid SVOD/AVOD Indian industry.

While pay-TV and streaming in India are expected to coexist in the near-to-midterm future, OTT adoption is outpacing TV growth, especially among the young. Still, even when the content offering's right, "cord cutting [cancelling pay-TV and moving to OTT] is at the nascent stages", said Boston Consulting Group India's Kohli.

"For many households, TV continues to be the centre of the home and a significant part of family time," he added.

This article originally appeared on the South China Morning Post (SCMP).

Copyright (c) 2022. South China Morning Post Publishers Ltd. All rights reserved.