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Who will win the streaming wars?

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Image Credit: Chetan Singh

Global giants such as Netflix and Amazon have entered the fray. But they now have to face Hotstar, the streaming service from the man who brought western TV to India: Rupert Murdoch.

In many ways, India’s tryst with cable television represents a Bildungsroman for the middle class. After liberalisation in 1991, cable TV shattered state-owned network Doordarshan’s staid monopoly, and old, crackling radios gave way to booming television sets. One television network, perhaps more than any other, symbolised this new reality: Star. When billionaire Rupert Murdoch purchased Hong Kong-based Star TV in 1993, he had locked himself into the rising fortunes of the Asian middle class “in helping American culture proliferate”, as Time magazine put it at the time.

Murdoch was one of the first to recognise the potential of India and China as lucrative viewer bases for both global and local content. While conquering Asia may have been his goal, things didn’t go entirely to plan. China’s strict restrictions hobbled Star’s growth there, but the network benefited hugely from India’s open skies policy. Though journalism ethics scandals in the West damaged Murdoch’s reputation over the years, his Indian business thrived.

From the early 2000s, India became the fastest-growing, and in effect, the most crucial international market for 21st Century Fox, Star India’s parent company. And Star India hasn’t looked back since.

That’s why Star India moved fast when it sensed a new revolution was around the corner, a digital one this time. When it started streaming live sports online through its website four years ago, many market observers dismissed the move as premature. India was hugely underpenetrated in terms of networks and had notoriously slow Internet speeds. It also disrupted Star India’s own core business: broadcast television.

The user statistics quickly began to dispel those doubts. Within the first year of its launch, the streaming website had started attracting more than 28 million unique users a day. Among its big hits were the World T-20 cricket cup in 2014 and the English Premier League football tournament that owes its popularity to Star’s long-standing coverage.

Emboldened by the success of its sports streaming website, Star India set its sights even higher. In 2015, it launched ‘Hotstar’, an Internet video-on-demand service. That move has put Star India in the crosshairs of two other American giants, Netflix and Amazon Prime Video. Throughout his long career, as Vanity Fair put it, Murdoch has “waged a series of battles against real or imagined foes”. Netflix and Amazon are as formidable rivals as any in the digital world. The web’s expanding reach and better Internet speeds with the rollout of fourth-generation (4G) services has created a buzz around video streaming in India. Media Partners Asia estimates that the subscription video-on-demand market will expand at a compounded rate of 71.4% yearly from $4 million (Rs 25.2 crore) in 2015, to $125 million by 2021. The question is not just whether Star India can stand its ground, but whether Netflix and Amazon can trump the man largely responsible for creating a generation of Indians as familiar with western TV programmes as anyone?

New York City-based 21st Century Fox has set an ambitious target of $500 million in operating profit by 2018 for Star India, rising to $1 billion by 2020. Hotstar is central to its designs. “Star India’s profit growth is accelerating and its ...  mobile service Hotstar is setting the pace of innovation,” James Murdoch, 21st Century Fox’s CEO and Rupert’s son, wrote in his letter to shareholders for fiscal 2016.

To be certain, the Murdochs have a few advantages.  For starters, Star India’s content, a bouquet of 62 channels built over more than two decades, is tailored for the Indian viewer. That Star India offers content not just in Hindi and English, but also in six other regional languages, makes it even more daunting for the newcomers. Crucially, Hotstar has distribution deals for Fox, ABC, and HBO shows, giving it access to some of the world’s most popular original TV programmes such as HBO’s Game of Thrones and Westworld. Those are just the type of shows English-speaking, premium customers, who tend to be sticky, love to binge on.

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Just offering content isn’t enough, a library needs to resonate with Indian viewers, says Hotstar’s CEO Ajit Mohan. Any service that “offers a wide and deep library will draw viewers”, he adds. His comment can be seen as a subtle barb that references the shortcomings of his rivals. Netflix and Amazon are essentially starting from scratch in building Indian libraries.

Furthermore, they face an uphill task in bringing their global catalogue of TV shows and movies to India. “The world of content licensing has traditionally been fragmented and regionalised. It will take some years to get an offering that’s the same everywhere,” a Netflix spokesperson says.

That doesn’t mean they don’t have the appetite for a scrum. Six months after Netflix announced an expansion spanning 130 countries, including India, Amazon executives were asked about the growth plan for the Amazon Prime Video streaming service on an earnings call. In his reply, Brian T. Olsavsky, senior vice president and CFO, singled out the company’s plans for the service in India. The narrative that emerged from this sort of talk was that Netflix and Amazon seemed ready for global domination.

Their arrival has sparked a scramble for Bollywood titles and local language content. Amazon has a $300 million war chest for acquiring the rights for Indian movies. When the service launched in December, its library boasted a plethora of Bollywood and regional movies.

Netflix, from its headquarters in Los Gatos, California, is banking on original content. After shelling out nearly $5 billion in 2016, Netflix has set aside $6 billion for new content in 2017. With shows like Narcos and House of Cards, and its practice of releasing all the episodes in a season in one go, Netflix may be a delight for binge watchers, but Indian content is a chink in its armour. It is a lacuna that the company is seeking to fill. It has partnered with Phantom Films (Queen, Udta Punjab) to make an original series based on Vikram Chandra’s award-winning novel Sacred Games. It is also pursuing Bollywood titles, indie films, and regional cinema.

Unlike Netflix, Amazon’s original programming has failed to create similar levels of addiction. Seattle-based Amazon is also censoring its shows, which may win it favour with authorities, but dims its appeal for viewers. In one extreme instance, an hour-long episode of The Grand Tour, an Amazon Originals, was hacked to half its size. The move may be something of a self-goal as there was no need for it. Censorship applies to TV but there are no such rules yet for the Internet.

Mohan—who as digital head of Star India had been the man behind the sports streaming success, before he was promoted to Hotstar’s CEO in April, 2016—says Hotstar doesn’t need originals, because it already has quality content. “Many platforms jumped on to the originals bandwagon because they were trying to address fundamental gaps in their content portfolio. But some of those exclusive programmes ended up being hastily produced shows, cheaply made and badly executed.”

The user traffic appears to back up Mohan’s claims. In terms of growth in users, Hotstar has outstripped its global rivals. In less than 18 months from its launch, Hotstar’s app has clocked over 72 million downloads, though the company declined to share the number of subscribers for the paid service it launched in March 2016. To put this achievement in context, it took Netflix nine years to reach 75 million subscribers. Even after its global launch, the service could only add 11 million subscribers from around the world. Amazon’s Prime subscription, which bundles free shipping, video streaming, and cloud storage, has a global subscriber base of 63 million, according to a July 2016 report by U.S. equities analysis firm Consumer Intelligence Research Partners. It’s not known though how many subscribers use the streaming service (Amazon declined to participate in this story).

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Perhaps because Star India is an experienced hand, it has developed a business model for Hotstar that seems sustainable for the Indian market. It offers live cricket, as well as several movies and television shows for free, and prices its premium subscription at Rs 199 a month, much cheaper than Netflix. Ads pay for the free content on Hotstar, while the premium content is ad free. In comparison, Netflix’s basic monthly subscription is Rs 500 a month, making it as expensive as a premium cable TV package.

 One of the reasons behind the success of the subscription model in the U.S. was the high average revenue per user (ARPU) for cable TV, in the range of $60-$100. With its lower subscription rate, Netflix thrived. But in India, it’s the other way round—cable TV ARPU is around $4, one of the lowest in the world.

That’s why Hotstar’s freemium (part free and part subscription) model gives it an edge. It allows Hotstar to rake in both advertising and subscription revenues. Unlike news web sites, where pop-ups can be closed, or on YouTube, where an advertisement can be skipped, VoD users have to watch an ad before the content starts playing. Therefore, potential advertising revenues are a critical factor when a streaming platform has to decide whether to be subscription- or ad-based. In a 2016 report, KPMG projected that the online video advertising business is expected to surge to Rs 6,700 crore by 2020, growing at a rate of 41% annually.

It is for this reason that most of Hotstar’s domestic rivals are ad-based. VOOT from Viacom18’s stable and Sony LIV from Multi Screen Media, are both ad-based. Zee Entertainment’s DittoTV, which launched in 2012 with a subscription plan of Rs 99 per month, provides a cautionary tale. Largely because it ignored the ad-based model, its subscription rates have now come down to Rs 20 per month. A January 2016 report by the consultancy EY predicts that despite the growth in earning population and
mobile wallets, streaming services in India will settle for a freemium model. “Given the right price points—Rs 5, Rs 10, Rs 15, and Rs 20 [sachets work well in India]—we can expect to see the emergence of freemium subscription models in the media industry,” it states.

Apart from a business model that seems more attuned to the Indian market, live sports content is one of Hotstar’s biggest draws. A user does not need to subscribe for live sports content on Hotstar, though must put up with ads. Not only does this provide a steady revenue stream for the company, it also introduces the service to the uninitiated.

Live streaming of Indian Premier League (IPL) matches helped Hotstar surpass 100 million users during the 2016 edition of the country’s flagship 20-20 cricket tournament. During the tournament, the app was opened 4.5 billion times by its users. Mohan says almost half of sports viewership in large cities is on Hotstar. This trend isn’t limited to cricket. According to Barclays, more Indians watched the English Premier League on Hotstar than on TV.

Mihir Shah, vice president, Media Partners Asia, goes as far as to say that live sports alone warrant streaming services. No wonder Amazon, Reliance Jio, Facebook, and Twitter are jostling for IPL’s digital rights. “Just acquiring IPL’s digital right can catalyse Amazon’s [Prime Video] presence,” says Shah.

While Amazon has been quick to realise the importance of live sports, Netflix isn’t interested. “Sports and live content will naturally have an audience. However, we see that consumers are increasingly seeking on-demand solutions,” the Netflix spokesperson says. “We are focussing on being a global Internet television network that offers original series, stand-up comedies, and kids’ shows.”

One area where Netflix and Amazon have the upper hand is user interface. Netflix, for instance, provides a seamless viewing experience that can keep users hooked for hours; Hotstar’s platform isn’t quite as polished. Mohan admits this is an area where his service can improve. “We are [either] working on or already have answers [to such issues],” he says.

In a country where 462 million people have Internet access, Amazon and Netflix might find their space, but in Hotstar they have a challenger that could well set the agenda. “When you look at the landscape of streaming services around the world, India is unique. It is the only country where TV shows, movie premieres and live sports are available on a single platform, and that platform is Hotstar,” Mohan tells me. The year 2016 was one that marked a shift towards video streaming; and Murdoch’s network once again is at the forefront of a revolution that could introduce a fresh generation of Indians to new ways of seeing the world.