How new market dynamics are changing the nature of telecom-OTT partnership
OTT players are vying for a revenue share model while telcos want to ensure that their content costs are under check and they are able to monetise content through their own content aggregator apps
Telecom operators and video streaming platforms have a symbiotic relationship. The former has the pipe for delivering content to the end-user while the latter has the content that fuels data consumption. Together, the telcos and OTT platforms have made India one of the biggest video streaming markets globally.
The partnership between the two has worked well till now with telcos seeing exponential growth in their data revenues while OTT platforms have got access to millions of content-hungry consumers and also a dedicated subscription income in the form of minimum guarantee (MG) deals.
However, the nature of content deals is undergoing a shift. The OTT players and content providers are vying for a revenue share model while the telecom operators want to ensure that their content costs are under check while they are able to monetise content through their own content aggregator apps. Reliance Jio has Jio TV and Jio Cinema OTT apps while Airtel and Vi have their own OTT apps namely Airtel XStream and Vi Movies and TV.
The content aggregator apps have helped telcos to retain subscribers and build stickiness. Telcos and OTT platforms have teamed up to offer bundled plans to postpaid as well as prepaid customers. Till now, the OTT apps launched by the telcos were available only to their customers. However, Airtel has changed its strategy by allowing non-Airtel users to access the OTT app Airtel XStream for a subscription fee.
Content company Shemaroo Entertainment has a long history of partnership with telcos. Shemaroo CEO Hiren Gada notes that the market is evolving so is the nature of the partnership between content providers and telecom operators.
"The deals between telcos and OTT players have evolved over a period of time. While Shemaroo has not seen any change in its deal structure, what we understand from the ecosystem and even telcos, is that some of the deals have undergone a change. Earlier, telcos were acquiring content for retention and boosting consumption," Gada stated.
According to Gada, most large content players have MG + cost per subscriber (CPS) deals. "For some, it will be zero MG and only CPS deal. For a telco, it is all about how much traction your content has, whether it is the number of people consuming it or the duration for which the content is consumed."
He also said that the content has been used as a tool by telcos to boost data consumption. Therefore, the content was bundled with data. Having built the video market, it is time for both partners to go to the next level by improving monetisation. "Now the telecom operators are thinking about the next phase which is to monetise their platform rather than just use it for consumption purpose," Gada added.
Bharti Airtel's subsidiary Airtel Digital Limited, which houses the OTT business, has reported a higher net loss in FY20 at Rs 82.9 crore compared to Rs 6.2 crore in FY19. Revenue declined to Rs 546.6 crore from Rs 613 crore. Expenses stood at Rs 607.5 crore compared to Rs 613.7 crore. The company incurred the biggest expenditure on content which amounted to Rs 506.5 crore compared to Rs 545.9 crore.
According to Vodafone Idea's FY20 annual report, the advertisement, business promotion expenditure, and content cost increased by Rs 131.6 crore to Rs 1170.7 crore in FY20 from Rs 1039.1 crore in FY19, primarily as a result of an increase in content cost by Rs 204.3 crore.
"There was a time when the consumer base that paid for data was very low. Also, the content partners had certain expectations from the telcos in terms of a minimum guaranteed revenue. The idea was that the consumer base will grow so will the content consumption. Now that the growth has happened and everyone has seen certain numbers, now you really don't need that kind of assurance (MG deals)," Gada said.
To emphasise his point, Gada drew a parallel between telecom and the early days of TV broadcasting. "Even in the initial days of television, there was no concept of pay TV as it was all FTA. Then platforms evolved, the consumer evolved and today you know that this channel is priced this much. That's the same trajectory for digital.”
A recent Nokia Mobile Broadband India Traffic Index (MBiT) 2021 report noted that data traffic in India grew approximately 60 times over the last five years, which is amongst the highest globally. In 2020, the data traffic grew by 36% YoY primarily due to a rise in 4G data consumption as 4G subscribers surpassed 700 million with 100 million new additions during the year.
According to a PwC report, India is the fastest-growing OTT market at 28.6% CAGR. It is expected to become the sixth-largest market in 2024 to reach a total market size of $2.9 billion in revenues.
According to a top-level executive with a media company, there are multiple kinds of deals that are happening between telcos and OTT platforms like fixed fee deals, MG deals, and CPS deals. "It's not a one-size-fits-all kind of a thing. One can't say with surety that MG is on its way out. Some telcos look at this business as a core business while for some it is a non-core business. Telcos who don't see this as a core business want to do a simple, small deal because they don't want to get into long-term commitments. The ultimate thing when everything settles down is revenue share deals. However, we can't say that any deal format is going out of the window," the executive said, on condition of anonymity.
According to a former content acquisition head of a leading OTT platform, telcos would not want MG deals to go away and the platforms would ideally want revenue based on pay per click. "So, ideally the new structure that starts building will be MG plus revenue share. The weightage of a standard or an MG or a fixed fee deal was written higher and the per-click revenue was floating. Now it has come down to an equivalent mode where over the period of time the weightage will shift to per clicks. But it will not happen on an immediate basis."
He further stated that the telecom-OTT partnership rests on the basic principle that telcos need content while OTT platforms need data users. "Platforms have the capacity to create content but they look out for reach. The telcos know that they provide subscription revenue to OTT platforms due to their massive subscriber base. Subscription revenue is a heavy line item on an OTT platform's book. Going forward, everyone would want revenue share deals. The business is fluid and everyone is trying to make it stable. One telco deal not going the right way can make or mar the B2B subscription revenue of an OTT platform. The reach will also go down which will impact MAUs and the ad revenue."
Offering her views on the evolution of telco-OTT partnership, ALTBalaji SVP, Marketing, Analytics, and Direct Revenue Divya Dixit said, "As per a white paper report by Opennet, a consumer that uses their mobile to watch standard quality video on a 4G network for 30 minutes a day can expect to use up to 4GB a month. If they switch to the HD video option, and this figure goes up to 15GB a month. These figures are enough to prove the profitable collaborations a telecom player makes from an OTT platform, not to forget the consumer retention rate that they benefit from."
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