OTT platforms in caution mode after 30-40% crash in ad revenues

Are consumers consuming lesser time on over-the-top (OTT) platforms as well as on linear television? In developed markets such as the United Kingdom, there are reports of subscription revenues dipping by 67%. Over 350,000 households in the U.K. are known to have not renewed their subscriptions in the third quarter of 2022. In India (largely an advertising-led video on demand market), there has been a huge dip in advertising revenues.

According to Karan Taurani, senior vice-president, Elara Capital, the new-age content platforms (which attract 20% of the digital ad revenues) have undergone 30%-40% erosion in ad revenues. “Sectors such as FMCG and auto which are the largest advertisers are seeing a lot of inflationary pressures, which is impacting their growth. Therefore, most advertisers are cutting their marketing cost,” explains Taurani. He says that the festival period typically sees 13%-14% growth in advertising revenue for most content platforms as well as TV channels, but this time round the festive ad revenue bump up has just been 6%-8%.

The dip in advertising as well as subscription revenue has led OTT platforms (both Indian and global) to press the caution button. Unlike the West, where lay-offs are rampant there is a slight trimming of workforce in India. But almost all the platforms are especially careful about content acquisition, which is close to 80% of their overall costs. Not only are large, big-ticket projects on hold, most platforms are going for tried and test genres of content. They are also not experimenting with content creators and are only opting for marquee content producers which have certain pedigree. “There is a preference for known producers. Almost 80% of the productions are coming from 20% of production houses,” says Pankaj Krishna, Founder, Chrome Data Analytics & Media. It wasn’t too long ago when every OTT platform was playing the volume game and was on a content acquisition spree, and thereby experimenting with new creators.

Matt Forde, MD, BBC Studios International Production & Formats says that content creators need to be smarter and flexible while pitching their content to platforms. “Companies such as Disney Plus, Netflix, Amazon or Apple are still buying, but we need to be sympathetic to some of the challenges that they are facing due to the advertising market downturn. Having a global network allows you to think through those problems. It may be expensive to produce a show in one country, but it can always be produced for less money in another country.”

BBC Studios is producing the third season of ‘Criminal Justice’ in India, unlike the previous seasons which were produced in the U.K. and adapted in India. If the Indian version succeeds, it will be taken to other markets too, says Forde. Adaptation of proven formats are appealing because they reduce the time and cost of development. “If you look at ‘Ghosts’, it’s done well in CBS in the U.S., so we can talk to platforms in other countries about the experience we have had in making the show, we could advise them on how they can reduce a lot of their risks,” Forde further explains.

Rationalisations of content costs are happening on television too. The head of a leading content production company says that most TV channels are re-considering their strategy on reality shows. Reality shows cost three times more than fiction but also attract more advertising money. “With advertisers tightening their purse, many broadcasters are looking at reducing their pipeline of reality programming. Star, for instance, has just one reality show and that too during weekends.”

However, Krishna of Chrome believes that TV is going through rationalisation not because of a dip in advertising revenue but because consumers are moving towards OTT. “News channel Aaj Tak’s digital revenue is almost 25% of its linear revenue. By next year it’s likely to touch 50%. Sony is simulcasting all its popular shows on Sony Liv. Television content is being tailored towards digital needs.”

Though Taurani of Elara Capital agrees that there is a selective approach in terms of genre, casting, writers and budgeting of the shoots, shows like Bigg Boss, Comedy Nights with Kapil Sharma, and KBC are marquee shows and it’s unlikely they would ever go off air despite pricing pressure.