The new digital age has seen an influx of mobile devices in the market. Improved broadband and mobile networks, and the proliferation of smartphones have allowed Indians access to a diverse range of entertainment, with videos topping the list. Cisco’s Visual Networking Index (VNI) has forecasted that total Internet video traffic in India will rise from the present level of 51 percent to 75 percent by the year 2020. These expected growth rates owing to factors such as the introduction of 4G, democratization of mobile data through optimized costs, proliferation of sub-$100 smartphones and the never to be satiated appetite of the average Indian for entertainment present themselves as compelling reasons to be in the video business.

The emergence of Video on Demand (VOD) service providers has brought an evolution from broadcasting to narrowcasting. Receiving generic content that is mass distributed is the old way. Today, Indian viewers can choose from a diverse catalogue of video content in the genres and languages of their preference and watch it whenever they like.

OTT VOD in India

A look at the India startup ecosystem with celebrated unicorns losing their luster makes one see how simple business logic is turned on its head. Discount pricing, deep discounts to shore up customer numbers, and huge ad spends beg the question – “How do they earn profits with such a business model?”

The same irrational exuberance which had engulfed the e-Commerce, food tech and online groceries segments has hit India’s growing and hyper competitive Video on Demand (VOD) industry. Global giants are entering the arena to expand into a potentially lucrative market that is today valued at $1.2 billion in terms of revenue. Production houses and television channels are throwing their hats into the ring to entertain their viewers across multiple devices. Telecom service providers see OTT video to boost data revenue. A host of content aggregators catering to regional audiences and niche players are focusing on live streaming of sports, entertainment and lifestyle events. Some thirty odd players are fighting to win the eyeballs of the Indian consumers.

As much as Indians are price sensitive, experience has shown that as long as they see value & quality in your offerings, they will be willing to pay for premium content

The last twelve months have seen investors in India tempering their exuberance, which has resulted in the decreased availability of easy money. This is substantiated by data from VCCEdge which shows that PE deals in India registered a slump of 25 percent in deal volume to 1309 deals amounting to $12.38 billion in 2016 as against $22.01 billion in 2015. This is a tell-tale sign of caution having to be applied to all markets including the VOD space.

Analyzing Existing Business Models

While we’re on the topic of money, it’s worthwhile to review business models to consider how things may shake out.

An ad based video on demand model alone is untenable. Content is an expensive commodity – especially content that is fresh and in demand. With ad rates for VOD at one tenth of that of television, ad revenues alone would be insufficient to cover the content licensing and content production costs.

On the flip side, a subscription backed revenue model (SVOD) is good for business, but how many viewers in India are ready to pay to watch video content? Adoption of a freemium revenue model wherein a portion of the content catalogue is free to watch and the remaining behind a pay has proved itself to be a sustainable business model. Who doesn’t like to try before buying?

As much as Indians are price sensitive, experience has shown us that as long as they see value and quality in your offerings, they will be willing to pay for premium content. Freemium presents a win-win opportunity for VOD players in attracting new users and also enables content partners to benefit via monetization.

Not a Battle, This is a War for Market Leadership

The VOD revolution in India will happen, but it’s going to be a long fight. There will be multiple players in the market, and the ones who win will be those who have the following:

Deep pockets and commitment for the long term

Knowledge of the Indian audience, rather than a focus on business valuations. Analyzing viewers’ consumption patterns can play a big role in meeting the goal of personalization.

Culture that values technology innovation

Differentiated content catalogue

Strong business model

Anyone who is going for the quick win is going to be left badly bruised on the battlefield. VOD has always been an exciting space to be in; and now, more people than ever are watching. It’s going to be a steep learning curve for one and all, and the ride has just begun.