Disney+ Hotstar has announced that the upcoming Asia Cup and ICC Men’s Cricket World Cup tournaments will be accessible for free on mobile phones through their platform. However, industry expert Karan Taurani of Elara Capital suggests that while this move may attract more viewers in the short term, it could lead to increased losses for over-the-top (OTT) platforms in the long run. Taurani shares his viewpoint in the Elara Diet Report—Your Swift and Savvy Guide to a `Breaking News or a Development.’
The move by Disney+ Hotstar to offer cricket content free to mobile subscribers, if continued over the medium term, may result in higher losses for over-the-top (OTT) platforms and lead to consolidation, as many may be unable to survive with low ARPU and free offerings; in our view, this move will negatively impact subscription revenue growth for global/broadcaster led OTT platforms which are SVOD/freemium based respectively.
Offering premium content free does not augur well, as we believe freemium is the best way ahead, as India OTT already deals with challenges like lower ARPU on OTT, high content cost, a fragmented OTT market, and dominance of social, search and commerce in the ad market.
Magnitude:
The IPL Season 16 just ended with Disney (Disney Star Network) having the sole TV rights of the property whereas digital rights were with JioCinema, which offered IPL free to its consumers.
As per our note Free-for-view IPL may doom OTT market released on 10 January 2023, offering the most expensive content, free of cost has caused disruption in the fragmented and price-sensitive India OTT market, as JioCinema has been unable to recover more than 35% of its content cost by going pure advertising-based video on demand (AVOD), in line with our expectations.
Also, no large OTT platform has been able to undertake price hikes in the past six months, due to the disruption caused by JioCinema which offers movies, originals, and cricket content free (Jio Cinema started charging only for global content, which has a small base in India).
To compete with Jio Cinema in the digital video advertising segment, Disney+ Hotstar has decided to offer the upcoming Asia Cup and the Cricket World Cup free to mobile-only subscribers; we believe this will be a big disruption and change audience habits to pay for premium content.
As per our assessment, more than 90% of OTT consumption is routed via smartphones, as connected TV penetration (8%-10% currently) remains low, on low fibre broadband penetration, and high broadband ARPU.
This means a section of the audience will watch premium cricket content free, and it may take time for other OTT platforms to undertake price hikes and start charging customers. We do not expect most connected TV consumers to pay OTT subscription for watching cricket on TV; linear TV may gain more traction, as consumers have the choice to watch it free or on mobile.
This, in turn, may lead to a sharp fall in high growth SVOD revenue for Disney+ Hotstar, which may be partially offset by increased revenue in the low growth TV segment (tad better ad- and subscription revenue). Offering cricket free may also lead to a bigger fall in Disney + Hotstar paid subscriber base (already down 14% over the last 6 months due to IPL moving away), if continued over the medium term.
Triggers:
We continue to believe India OTT market should adopt the freemium model, with low ARPU for subscription, given consumer price sensitivity; further, a pure AVOD model too may not augur well, as digital advertising in India is dominated by social, search (including YouTube) and commerce, which command ~75% share in India’s digital advertising as of CY22 (Source: Pitch Madison).
There is also a cause for concern over digital advertising, as it is cyclical in nature with higher dependence on internet & commerce companies, and has no third-party measurement mechanism for video content, which limits potential scale for video advertisements.
Given the high content cost and fragmented OTT market, we believe it is beneficial to have a steady and sticky revenue base in the form of subscription even if ARPU is lower, as there is potential to hike ARPU in the medium to long term once the market consolidates.
This would further dampen the prospects of other OTT platforms, raising prices and building an SVOD base, as cricket remains the most expensive content compared to movies and web series; we believe this era of offering free content should be short-lived, as getting consumers adapted again to pay for content may take time.
Within India’s OTT market (including YouTube) of USD 2.1bn as on CY22 (Source: EY FICCI), 40% of revenue is SVOD based, with a revenue CAGR of 33.2% over CY19-22. It may see a negative impact on growth due to premium content being offered free; platforms in India’s OTT market would continue to incur losses, due to low respite for SVOD revenue.
This also may lead to consolidation wherein smaller firms may be unable to survive, due to lower ARPU and free offerings, given high new content cost.
Watch the Diet:
Free content would lead to higher losses for OTT platforms and lead to consolidation.