Disney recently launched Disney Junior that will be available only on digital distribution platforms; HBO Asia and Eros International are all set to launch two new premium movie channels, HBO Defined and HBO Hits, in India early next year that will once again take the digital route. Nick has announced Nick Junior that will once again be present only on digitised platforms…
The one underlining aspect of each of these offerings is that the parent companies, in each case, are launching advertising free channels. In a market such as India, where advertising revenues dominate the broadcasting industry, moves such as these indicate the faith broadcasters have placed on digitisation and their attempt to realise the opportunities that are likely to come with it.
Not that ad-free proposition was missing in India prior to this. The kick-off of HD (High Definition) offerings from various channels, more specifically of sports related events on channels such as ESPN or a channel such as Zee Golf from the Zee Entertainment bouquet, also have ad-free or minimum advertising versions.
The big question is whether this bet on digitisation to form viable business models that are not dependent on advertising, realistic?
The big bet on digitisation
“With digitisation, there will be transparency in the system and that should open up avenues for ad free channels. India is dominantly an advertising aligned market. The revenues for ad free channels hence would be obtained largely from the distribution route, implying subscription driven business models, which are common place in more mature markets,” said Kartik Sharma, Managing Partner, Maxus.
Digitisation has led to a better consumer viewing experience thereby creating an ecosystem for the launch of more channels by established players, pointed out PM Balakrishna, COO, Allied Media. He added, “Given the change in the base of homes available to be tapped for subscription and other value added services (VAS) related opportunities, there has been a recent spurt by broadcasters to leverage opportunities that emerge from this.”
Are ad free models viable?
Balakrishna believes that though the ad free strategy is skewed towards building loyal viewership base, jury is still out on whether these channels would be able to resist the lure of advertising revenues in a market such as India that is primarily advertising led. Current for any broadcaster, the revenue model is a combination of subscription and advertising revenue but going forward how the mix will change is anybody’s guess.
Bringing another thought to the conversation, Sharma is of the opinion that India is basically a value-seeking market rather than a value-giving market. This shift of equation will take time since Indians are not used to paying for content unlike the international market. Hence, the non-advertising supporting model will take time to gain acceptance by the viewers across the country.
“There is a clear opportunity here. With the growing Direct To Home (DTH) base, Internet Protocol TV (IPTV) technology making steady inroads, launch of more HD channels and 3D content can work on a demand supply model. The viability will however depend on the pricing strategy that such channels will adopt and the kind of content that they will provide as they will need a critical base of customers to make the service profitable,” observed Balakrishna.
Sharma believes that broadcasters would have to maintain the balance between overhead costs and the profits obtained from distribution. The primary focus is on the kind of revenues that the channel would observe at that given point of time.
Generally maximum revenues for a broadcaster are obtained from advertisers. For an ad free model, subscription pricing and corresponding value proposition from content and packaging viewpoints would dictate the fortune of the channel. “Critical mass from a subscription aspect will be an important business factor for making the channel viable. The ability to create and run good content will become a challenge if the Return on Investment (RoI) is not commensurate with the investment in creating it,” added Balakrishna.
What does it mean for advertisers?
For channels such as HBO that would follow its international model of being completely ad free and driven by concepts such as pay per view and so on, Sharma believes that the channels would be closed to advertisers. The advertiser would be under pressure to reach out to many channels to get similar viewership as before.
But advertisers have an opportunity as well. Balakrishna believes that consumers that would opt for ad free, and hence subscription driven offerings, are perceived as premium and ‘sought-after’ audiences. The touch-points to engage with such viewers can be through VAS services. There is also the opportunity to create engagement beyond pure play advertising and brands would keep an eye out for that. Advertising agencies and such partners would be faced with the question of how to engage such audiences, once offerings such as these do gather critical mass.
Ad free or not, the game is always about revenue optimisation and broadcasters will continue to seek content monetisation across platforms and services. But as always, it is the viewer that will dictate the success of these endeavours. What will currently be seen as a premium service, would invariably lead to a better viewing experience and though the base for now may be small, it has immense potential to grow.