As lines between television, media and internet continue to blur, we are seeing the proliferation of newer services and platforms. This, coupled with falling data prices and increasing smartphone penetration is opening newer avenues for the end user to consume video content. Consequently, we are witnessing an acceleration in the advancement of the overall ecosystem wherein content is abundantly available.
As it exists, video content distribution platforms range from typical linear broadcasting via Direct-To-Home (DTH) service operators such as Tata Sky, Airtel TV, Dish TV etc. to a whole laundry list of local and global Video-On-Demand (VOD) platforms such as Netflix, Amazon Prime Video, Hotstar, YouTube, Alt Balaji, Voot and SonyLiv among several others. There are more than 30 Over-The-Top (OTT) VOD players in the Indian market! While pricing and business models vary from service to service, the underlying common offering to the end-customer is consistent – video content.
In that context, it is clear that VOD is going through a period of strong demand. This is further evidenced by an increasing number of digital delivery platforms, a surge in OTT video content consumption and a steady uptick in subscriber metrics. Consequently, the lifeblood for video OTT – i.e. ‘data’ is experiencing swift growth in terms of retail usage.
Growing Hunger for Data
As per the most-recently published Telecom Regulatory Authority of India (TRAI) Performance Indicator Report, average monthly mobile data consumption spiked to a staggering 2.4GB per person in the Jan-Mar’18 quarter, up from a modest 137MB in the quarter ending 2015 (Oct-Dec’15), implying a lofty 16x growth in less than three years. Unsurprisingly, an estimated 65%+ of this growth is being driven by ‘video’ in effect underpinning video as the key propellant for this upswing in data consumption. The pivotal role played by video is further backed by a recent Hotstar report, suggesting a remarkable 5x growth in video consumption in 2017 alone. A meaningful portion of this growth can be attributed to aggressive pricing largely spurred by Reliance Jio.
However, I believe there are still non-price driven tailwinds in the industry helping the aforementioned growth. Growing appetite for video content coupled with the ease, flexibility and mobility in its consumption being key factors. Furthermore, from an admittedly simplistic perspective, an increase in data consumption is being witnessed in international markets as well, which did not necessarily need an aggressively priced new entrant to drive it!
From the perspective of industry participants, the importance of video content is clearly reflected in the investment commitments from VOD operators such as Netflix and Amazon Prime Video. Netflix is expected to spend around $7.5-$8 billion (P&L basis) in video content in 2018 (globally), up sharply from $6 billion in 2017 and $4.9 billion in 2016.
In fact, Netflix expects to be free-cash flow negative for years to come, largely due to the free-cash flow drag arising from continued investments in original content. Similarly, Amazon (while they do not disclose exact content spend), is widely believed to be upping their content spend as well. I suspect, the story is same for other distributors across the world such as HBO, Hulu etc who continue to invest in content. In last week’s blog post, (Susan Wojcicki, CEO of Google-owned YouTube, a key metric was shared (not otherwise shared regularly by Google) - users across the globe now watch over 180mn hours of YouTube on Television (or Television connected devices) every day. I suspect, if you include mobile, the number would jump up meaningfully. In my view, these are all remarkable data-points underlining the tremendous amount of user appetite for video content.
The Big Picture
Notwithstanding the robust growth in video content consumption, in my view, we are still very much in the first innings of what should be fairly drawn-out secular growth cycle as I see growth in video consumption to gain further traction. A heightened level of commitment from industry participants as alluded to earlier, unmistakably highlights the growth potential across the VOD market. Such a level of industry commitment towards supply of video content, in my view, acts as a strong endorsement to demand for video content. Rarely do we see such an industry-wide consensus sectoral call being wrong.
Furthermore, India, a mobile first country, has tremendous room for growth in smartphone penetration which is estimated at 33% in 2017. This leaves meaningful runway to exploit which should further act as a growth lever for content consumption. I also expect to see modest acceleration in consumers migrating to OTT platforms from cable and DTH operators, in-essence driving cord-shaving and cord-cutting, although that may be a subject for an entirely separate discussion.
Next week I will do a deep-dive in market leaders Netflix, Amazon Prime Video, and Hotstar and explore their differing trajectories. Stay tuned.
This will be a recurring column published every Saturday, kicking-off from 4th August 2018