It’s the prefix of the season—super. Add it to any word you can think of. And Nitesh Kripalani, country head of Amazon Prime Video, applies it with the felicity of any youthful startup chief executive out there: the customer segment for online video is ‘super-small’ in India.
But Amazon’s local customers are ‘super-interested’ in video. Data charges are ‘super-important’ for them. So Amazon, he says, is making sure data consumption for video is ‘superlow’ while ensuring visual quality is ‘super-high’.
It’s hard to miss when Kripalani, in his late 30s, can go super six times in a five-minute span. But what’s behind e-tailer Amazon’s interest in online video—that too, a paid-subscription service— when its old nemesis Google’s YouTube pretty much built the advertising-supported market in India click by click?
The answer calls for a perspective of over-the-top (OTT) video on connected devices (laptop, smartphones, tablets, and smart televisions) in the past 15 months, against the incumbent cable and satellite television (TV) market in India.
The latter was a formidable Rs 47,500-crore market in fiscal year 2015, according to the Telecom Regulatory Authority of India (Trai). In contrast, OTT video is less than 20% of the Rs 7,300-crore digital advertising spends in 2016 (an estimate by advertising media company GroupM). Yet, this segment with few revenue shoots is seen as the next big thing in a market ruled by prepaid mobile customers.
The Indian Viewer
Internet-video services like Hotstar, Netflix or Amazon Prime are called ‘over-the-top’ because they don’t ride on traditional broadcasting or single-telecom networks. Thanks to net neutrality, OTT video doesn’t require any affiliation with any operator.
In 2011, the Cable Television Networks (Regulation) Amendment Act pushed local cable operators to digitise networks—basically organise the market (see ‘TV Market Gets Organised’). Call this traditional TV, where a single cable or satellite TV subscription is consumed by a household whose industry average is five viewers. Even with a conservative estimate of four persons per household, this is more than 700 million viewers.
In comparison, OTT video growth has been tangential to traditional TV market, thanks to price competition among smartphone brands, as well as between telecom operators after Reliance Jio’s largesse to unveil 4G networks. In 15 months, the online segment for video rose from 66 million unique users in 2015 to more than 80 million in end 2016.
It’s not the 21% growth that is exciting broadcasting networks (Star Networks, Tata Sky), content owners (Yash Raj Films, Balaji Telefilms) and telcos (Vodafone, Airtel) to push for OTT. It is the behavioural or habit shift that caught their eye.
“When distribution becomes free because of the internet to directly access consumers, then competition keeps the market honest,” says a digital media entrepreneur. “The distribution (cable) guy is not king—consumer is actually king.”
“In absolute terms, the 80-million number is significant,” says Vidya S Nath, director, digital media, Frost & Sullivan, adding that it is the population of European nations like France or Germany, where traditional cable networks are under threat.
“We have got to this scale without adequate broadband infrastructure support,” she adds. The icing on the cake: “These are unique viewers, each of whom is present on one or more platforms.”
Services led by data analytics of unique viewer habits make for more sharply-targeted advertisements – the raison d’etre of Google or even Hotstar, the OTT brand of Star Networks which has more than 70 million mobile-device installations.
Of the 80 million online viewers in India, the paid-subscriber base was at a minuscule 2 million last year. There is a 40% drop expected after promotional offers expire on services like Netflix and Amazon Prime.
Currently, Frost & Sullivan pegs industry revenue from paid subscriptions at $8.5 million. That’s why it raises the intriguing question: What’s Amazon Prime thinking by bringing video as a paid-service when everybody else is fighting for the ad rupee?
A digital-media industry source, who has worked with content owners and telecom operators for more than a decade, notes this has to do with Amazon’s global strategy of high engagement on its platform.
Just like in the US, Amazon is giving a lot more value for Prime than just providing video. “Video is clubbed with instant e-commerce delivery (for Rs 499 per year). You don’t pay extra for faster deliveries,” he says.
Further, video helps Amazon because consumers keep returning to the platform, even when they are not shopping online for products. “For Amazon, investing in Prime Video is like investing in customer retention.”
Amazon founder Jeff Bezos no less spelt it out in the 2015 shareholder letter, justifying large spends on creating original video content a la Netflix. “(Video) shows are great for customers and they feed the Prime flywheel – members who watch Prime Video are more likely to convert from free trial to a paid membership and to renew annual subscriptions. … Prime has become an all-you-can eat, physical-digital hybrid that members love.” Amazon’s video play, which is less than four months old, cannot be seen in isolation of its overall digital ambitions, even in India.
The first users of internet in the US were for paid-utilities like shopping (eBay, Amazon) and internet-enabled home services, apart from email.
But in India’s next wave of growth, online users will consume video before buying products online. That’s the bet. “The top three app growth categories in India are music, media and entertainment,” says Pratik Poddar, vice-president at Nexus Venture Partners, a venture-capital (VC) firm in Mumbai. “People are hungry for content and we are seeing significant behaviour change where many users are spending more than 15 minutes a day on new content destination companies.”
If Amazon can ensure customer stickiness after getting new users from its OTT service, it can enhance their e-commerce business in the next wave of growth.
For this, Prime Video has tied up with mobile operator Vodafone (and is exploring other such partnerships) to tap into new prepaid mobile customers. Until then, Amazon is focusing on increasing customer engagement on Prime, and converting Amazon.in in users to Prime subscribers.
Google and Facebook have done this naturally beyond core search and social network businesses, respectively. Until 2015-end, a lion’s share of the OTT market belonged to YouTube, part of the Google arsenal.
And WhatsApp, a Facebook company, is emerging as a dominant channel for videos to go viral apart from the parent company’s video ambitions.
“Customers here are watching digital content for free, either via an advertising-supported video service, or because pirated video services are still high,” Kripalani explains. “But Amazon customers are super-interested in video. They are engaging with the service, our content selection, which is making Prime a high-growth product. It is reflecting in our consumption and sign-up figures.”
In the US, the $136-billion online retail giant has added Reading (Kindle-based), Twitch (gaming), Audible Channels (audio content), and Photo Family Vault as new Prime exclusive digital benefits last year.
Stratecherry, a subscription-based newsletter featuring analysis of tech and media news, quoted a Consumer Intelligent Research Partners estimate in March 2016 that Amazon has 54 million Prime members, “which at $99/member would generate $5.3 billion in revenue” globally.
Like in India, Prime Video is available at no extra cost to Amazon Prime members in Belgium, Canada, France, Italy and Spain.
The OTT fight between YouTube, Netflix and Amazon has been more than a wake-up call for broadcasters, telecom operators and content creators who are rejigging plans for the OTT consumer.
“They have to move,” says Brian Morris, general manager of global media and entertainment services at Tata Communications. “If they want to stay competitive, and provide reach to mobile consumers, OTT is not an option. It is a requirement.”
Launched in February 2015, Hotstar has stood out for its timing and heavy investment in marketing the brand whose live sports events usher in masses of users.
A sports series guarantees mobile-video platforms of 5-10 million users depending on the targeted geography. “The biggest gain in OTT is from IPL (Indian Premier League T20 Cricket), which is why Hotstar is what it is,” Nath says.
It involves bagging the digital rights for IPL, which are up for bids after the 2017 season. “World over, the primary move to lock in a consumer online is sports,” she says. “Anybody who has rights for sports—cricket in India, football world over—locks in consumers.”
This is interwoven in strategy. “Sports brings us loyal fans and users to come and spend humongous amounts of time,” says Uday Sodhi, head of digital business for Sony Pictures Networks India. “It’s a long-term passion. We get great support from advertisers because users love the sports.”
SonyLIV uses its TV broadcast muscle to source the sports content from three television sports brands: SonySix, ESPN and TenSports. “This covers cricket and onto our football portfolio which is probably our deepest,” he adds. While sports content is free on its OTT, SonyLIV’s movie section is a paid service.
OTT video means customers increase their data consumption, and mobile operators will see average revenue per user go up. Content owners too can choose from a range of platforms. They are in the spotlight. Only Much Louder (OML), which manages shows for comedy and live events for brands like All India Bakchod (AIB), are working with two OTT companies, Hotstar and Amazon Prime.
“The marketing heavy-lifting by these guys like what Hotstar is doing for On Air With AIB and what Amazon has been doing with comedy specials (14 stand-up comedy episodes of an hour each) has definitely got us new fans,” says Ajay Nair, director of OML. “With Amazon Prime or Hotstar, I know the subscriber is going to spend time there.”
The battle is on for content, as Netflix alone added 600 hours of original programming – apart from licensed TV shows and movies – to its year-old service here. In absolute numbers, online video advertising dominates subscription figures, but that is not sustainable as Vice Media, a digital media company headquartered in New York discovered in North America. (Times Group which publishes The Economic Times has a partnership with Vice.)
CEO Shane Smith says advertising cannot be a long-term solution with Google and Facebook having four-fifths of that pie. “We have an entire generation which has not seen advertisement because of ad-blocking, iTunes and Netflix,” he noted.
Morris of Tata Communications says the revenue model has not been discovered yet anywhere around the world. On that front, Amazon Prime knows there is no such thing as a free lunch. It is a risky gambit for OTT in India, but smart for its consolidated plans.