12 Jul 2018 19:47 IST

Over-the-top wars: The growth of OTT content providers

Netflix and Amazon’s success is sure to herald the growth of IP-based content exchange in other industries

Over-the-top (OTT) service providers are taking complete advantage of the boom in internet penetration in India. With the reach of the internet sharply increasing, OTT service providers such as YouTube, Netflix, Amazon Prime, and other players such as Skype, are honing their skills to deliver value and content to the customers.

OTT players stream their content, or allow the customer to use audio and video communication services, over the telecom service provider’s network. Airtel and Vodafone, for example, have no control over customers using their internet connectivity to watch movies on Netflix or Amazon Prime. Network service providers are mere spectators watching the OTT providers accrue huge revenues through their network.

Given the severe competition encountered by players in the telecom sector, such leakage of revenue is damaging. This is especially true with the entry of Reliance Jio and the ridiculously low offers it makes when it comes to data plans, which are used by consumers to stream content on OTT platforms such as Hotstar and Amazon.

Folllowing such rigorous competition, not only have telecom operators had to drop rates, but they have also been unable to monetise content offered by OTT players, which their own customers are paying for. Airtel, however, recently announced a partnership with Amazon India to offer a one-year subscription to Amazon Prime — free of cost — to its post-paid subscribers. What other option do they have?

Internet technology

The next few years are likely to be extremely disruptive, with newer technologies being deployed to enable wider connectivity. Drones and balloons flying at substantial heights are likely to beam internet to substantially large areas of population. These will help a large part of the global and national population access the internet.

For example, India already has around 130 crore mobile phones, with 96 mobile phone connections per 100 people. Countries such as Brazil have close to 150 connections per 100 people. What’s interesting is that more than 80 per cent of the users in India access internet through their mobile phones. With increasing internet penetration, and that too using smartphone devices, OTT players are going all out to ready themselves to capitalise on such an opportunity.

Netflix and Amazon

Amazon is taking advantage of its dominant position in the e-commerce industry to spearhead its streaming service Amazon Prime. Its current annual subscription, which costs a little over ₹1,000, gives users access to its vast catalogue of movies, TV shows, music and other entertainment content from all over the world.

Customers pay less than ₹100 per month. In addition to this, Amazon offers preferential delivery and discounts for an Amazon Prime subscriber. This is an interesting bundling service that helps the behemoth gain first-mover and competitive advantages in both businesses — streaming and delivery.

Having established a firm business model and assured of a large population of internet users in the vicinity, the monies being sunk into creating original content by the OTT players is mind-boggling. The budgets to create original movies and high-quality content are far higher than many of the established movie and broadcaster budgets.

The Crown, with 10 episodes in a season, is custom-made for Netflix at a cost of around ₹500 crore and has been well-received by viewers. Such a spend is unheard of for TV shows.

Legacy companies such as Walt Disney are considered new players in the market, with Disney recently announcing its entry into the fast-growing and lucrative business. It is a strong player that comes with enormous strength and pedigree in the business and will make a lasting impact on the industry when it begins its on-demand television network next year. Disney has also announced that it will pull all its Disney content out of Netflix when its streaming service goes live.

Netflix, meanwhile, is reported to be spending more than ₹35,000 crore per annum on developing original content that will be exclusively available to its subscribers. Both Netflix and Amazon each have more than 100 million subscribers.

Co-existence

The month-on-month growth in subscription is increasing at a very high rate.

Live-streaming sports, the rights to telecast which are owned by traditional networks, is the other big thing in online streaming. Analysts say that it is only a matter of time — once OTT players have reached critical mass — that important live sports events are more widely available through on-demand OTT services.

With next generation smart TVs capturing internet streaming directly, and gadgets such as ‘Chrome sticks’ available to cater to ‘not-so smart’ TVs as well, it would be foolish to underplay the emergence and dominance of OTT players.

It would be tempting to assess the current trend — and the pace at which it is advancing — and sound the death knell of traditional and cable television. While many analysts believe this, critics say traditional TV channels will have their own space, given their convenience and the established ease with which the elderly population currently accesses them. A coexistence with OTT entertainment content service providers is likely in the short to near term.

In summary, it is not only entertainment, but industries such as education and healthcare that will also start seeing large volumes of content being exchanged through the internet protocol-based technology. Online learning and remote healthcare already show promising growth, especially in developing countries like India, where they need to leapfrog the brick and mortar-based delivery to provide quality healthcare and accurate diagnostic and treatment options to the hinterland.