Direct-to-digital movie release on OTT platforms has changed the economics of film revenues: Chandrashekar Mantha

The impact of COVID-19 on the OTT industry has been very interesting to track. Several new business strategies and formulas have been devised based on consumer demand and behavior owing to the strict lockdown that curbed moving watching in theatres.

Highlighting the newest business models, market dynamics, and consumer behavior, Chandrashekar Mantha, Partner, Deloitte India, interacts with Voice&Data.

Interesting excerpts:

Voice&Data: With growing preference for releasing new content, especially movies, on OTT platforms, are we witnessing a new consumer trend?

Chandrashekar Mantha: During the lockdown, viewers were able to enjoy fresh movie content only on the OTT platforms with many production houses opting for the direct-to-digital release option. We have also witnessed that larger OTT platforms are prepared to make higher investments on the new content acquisitions to attract additional subscribers on their platforms.

Given that, there is still not much visibility on the opening of theatres or partial seating capacity under SOPs, viewership on OTTs will continue to witness an upward trend. Hence, we can expect more direct-to-digital deals between content creators and OTT platforms.

Content and money move where the audience is and presently the audience is on OTT platforms, so this trend is a fair reflection of the economics at play.

Voice&Data: How are content providers/channels changing their strategies to engage consumers?

Chandrashekar Mantha: Leading players have invested significantly by acquiring movie titles and premiering them on OTT as a first time in history today. A healthy pipeline of Bollywood content will keep the continuity of the audiences until the exhibition industry sees recovery. In addition, the syndication of international content will also continue to drive audiences as this will gain popularity.

OTT services are offering extended free trials, innovative and attractive subscription and payment models as well as partnerships with other eco-system players to attract new users as well as build up engagement.

Many OTT players are focusing on regional content to engage their consumers. Further, they are increasingly focusing on enhancing the user experience on their platform through personalized recommendations and in-app messages, continuity between devices, and multiple sign-ons.

They also rely on advanced analytics to identify trends/patterns on both viewership/audience behavior as well as the effectiveness of marketing schemes/offers to introduce more targeted content as well as a customized experience for their viewers.

Voice&Data: What is the overall impact on revenues of such movies and how are the OTT providers benefiting from this?

Chandrashekar Mantha: Traditionally, theatrical revenues constituted the majority of the revenues earned by movies. OTT revenues were supplementary to the theatrical revenues prior to COVID. However, with this new model of digital-first release, the economics of the movie revenues changes substantially.

Typically, OTTs would provide the content producers an assured return on their content. Consequently, the impact on the revenues will vary depending on the budget of the movie.

Content producers especially the small and medium-scale producers would be able to recover their money and earn reasonable returns instead of blocking their capital especially when there is significant uncertainty on the audiences returning to the theatres, thus, protecting this section of content producers from significant losses.

However, the big-budget movies with ‘A’ list stars, whose revenues were significantly dependent on the theatrical revenues will lose the potential upside of a theatrical first release and may have to be content with lower returns unless they are able to negotiate large deals with the OTT players.

OTTs on the other hand benefit from an increase in subscriptions and revenues from telco partnerships.

Voice&Data: The OTT penetration in tier 2 and 3 cities in India depicts a growth in consumer demand for new and unique content. However, data connectivity still poses an issue for the viewers in terms of quality and availability. What are your views about the internet/ connectivity capabilities of Indian service providers?

Chandrashekar Mantha: The overall ratio of urban to rural internet/broadband subscribers is about 63% to 37%. Pan India penetration is ~ 718 million. About 24% of wireless data subscribers are still on a 2G or a 3G network. Hence, there is significant scope in terms of enhancing the connectivity for these users, as they may not have a seamless experience as compared to the 4G users.

For e.g. 2G or 3G speeds are not suitable for streaming high-quality content (HD and higher formats). Similarly, other experiences such as gamification, e-commerce, and even certain application interactions work best with a 4G connection.

As telecom operators gradually switch to 4G spectrum across the country, users will have access to 4G speeds across remote rural areas too.

The Indian telecom market has 3 to 4 key operators now and has the required capability to improve the penetration of 4G services across Tier 2/3 towns.

However, considering the growing demand and consumption further accelerated because of the pandemic, it will become imperative for the service providers to step up the infrastructure (tower density as well as fiberization) in these areas as may be necessary to provide the users in these cities a similar experience like their urban counterparts.

Voice&Data: Do you think that there has been an improvement in the quality of data/internet speed over the past few months? Can it serve as a prospect for new OTT players emerging in the future?

Chandrashekar Mantha: As India entered the lockdown in March, there was a sudden surge in the data consumption, and the various networks witnessed increased stress on their network infrastructure. Users have experienced a drop in the data speeds, largely because of the changes in the consumption pattern (more people consuming data during day times from their home networks), similarly, the data consumption has increased because users are accessing their office networks, data-intensive software/apps which are more suitable for enterprise networks.

The consumption of streaming apps has also increased significantly. Users may not have opted suitable plans to meet their increasing data consumption needs add to that a scenario where multiple members of the household are accessing the same network for their varying data consumption needs affecting their individual user experience.

The pandemic however has re-kindled the fundamental need for increased fiberization across the country.

Service providers have to adjust to this shift of the network pressures from enterprise networks to home networks and gear up their network infrastructure to meet this demand especially if the situation continues to remain the same for a longer period.

Most ISPs have responded to cater to the surge in the demand by stepping up their infrastructure to optimize the traffic management activities. Some of them have also launched attractive schemes/packages for their consumers as well as increased or removed the data limits to satisfy their consumers. This has slightly improved the data speed recently.

The pandemic however has re-kindled the fundamental need for increased fiberization across the country.

The internet speeds need further improvement as we are significantly below the global average of 34 Mbps. The National Digital Communications Policy – 2018 has set an ambitious target of 50 Mbps by 2022.

Improving access and speed will definitely promote more data consumption as well as user experience as users would want to access better content. New business models that rely heavily on stable connectivity and speed including emerging OTT players will surely benefit from this infrastructural development.

Most platforms are planning their content mix such that it can serve larger audiences and geographies.

Voice&Data: According to you, do Indian OTT players have any opportunity (investments or expansion) in the foreign markets? What should be the possible plan of action for these businesses to align themselves with PM Modi's ‘Make for World’ motto?

Chandrashekar Mantha: There are approx. 32 million Indians residing out of the country. This is a considerable play for OTT players and hence many of the OTT players have already initiated their measures around international growth strategy.

US, UAE, Malaysia, Saudi Arabia, UK, and Sri Lanka are some of the emerging markets, which seem to have a strong potential with a sizeable Indian population. Some of these countries like Sri Lanka, Bangladesh also share local Indian languages.

A large opportunity exists with the production houses that make content for OTTs, which suits the viewing preferences of a global audience.

Most platforms are planning their content mix such that it can serve larger audiences and geographies. Syndicated Indian content dubbed in the local language has already seen good levels of popularity with overseas audiences. Indian OTT services will have to identify target regions where they want to be present and then build their content library aligned to that TG.

A large opportunity exists with the production houses that make content for OTTs, which suits the viewing preferences of a global audience. Just as global shows/movies have gained popularity in India, the reverse can also be true.

Scope to enter into an alliance with regional players and co-produce content aligned to local audiences can be a part of Make in India initiatives. Further to be ready to serve these markets as part of the ‘Make for world’ motto, the OTTs will have to gear up on all aspects such as content, processes/systems, platform quality including UX/UI, compliance with privacy norms.