OTT ad growth hits speed bump in AMJ quarter due to second covid wave

For OTT platforms, the festive quarter of October-November-December had marked the recovery in ad spends followed by decent growth in the January-February-March quarter

e4m by Javed Farooqui
Updated: Jun 10, 2021 12:50 PM

After two back-to-back bumper quarters, over-the-top (OTT) platforms are staring at an ad revenue de-growth due to the cutback in spends by marketers in the wake of the second wave of the Covid-19 pandemic. Even as ad-driven platforms have taken a hit, the subscription side of the business is still holding strong.
India has incurred a heavy death toll during the second covid wave as the health infrastructure crumbled in the wake huge spike in infections. With the situation going out of control, states had to implement strict lockdown measures to contain the spread. This resulted in disruption in supply chains coupled with weak consumer demand.

For OTT platforms, the festive quarter of October-November-December had marked the recovery in ad spends followed by decent growth in the January-February-March quarter. The months of April and May have been very tough for OTT even as hopes are pinned on June to bring back the lost momentum.

It has been a double whammy of sorts for the OTT platforms as AMJ is anyway a weak quarter from an advertising perspective. However, the pandemic has made it worst as corporates shifted their focus to the well-being of their employees and business partners while sales targets took a backseat.

"JFM was very good for everyone while AMJ has been a disaster. June seems to be promising but promises are yet to come true. Compared to June 2020, June 2021 is looking better. Some brands are not spending because their demand has anyway increased while some brands are not spending because there is no demand due to supply chain-related issues. AMJ is anyway not a good quarter and generally sees a dip after JFM. This ad slowdown is like a double whammy," says the revenue head of a leading OTT platform.

While it is understandable for categories that are not doing well to hold back spends but categories that are doing well are not spending either. "Why aren't safe categories not spending? TV has taken a hit while other mediums were anyways going through a rough patch. Digital was the only silver lining. If digital is also getting impacted then we are in for big trouble," he stated.

Chief Client Officer & head - West, Wavemaker India Shekhar Banerjee enunciated two key reasons why AVOD platforms are taking a hit. The ROI delivered by OTT platforms has come into question even as tech giants are resorting to aggressive pricing.

“2021 has been much kinder on AdEx v/s the first wave. However, the revenue growth of the AVOD platform is challenged by 2 factors. First is the role of the platform and advertisers are questioning the benefit and incrementality that OTT platforms are bringing in. Somewhere linked to the same is the second factor of pricing, walled gardens have a very aggressive pricing strategy on Video ad inventory and AVOD platforms need to rethink their pricing strategy to stay competitive. Given the cost model of OTT we are likely to see them pivot fully towards SVOD, they may not be able to sustain the Ad game beyond live events and sports," Banerjee noted.

DAN Performance Group CEO Vivek Bhargava said that the overall growth for OTT platforms in terms of users or subscribers, ad revenue, or time spent has been consistent. He further stated that the JFM quarter generally sees a dip in ad spends as most of the advertisers spend a large chunk of their budgets in OND.

"I think the trend can be pinned to the regular degrowth in the JFM after the festive season. My assessment is that the impact is higher on the advertising revenues and not on the subscription revenue. Multiple factors like the 2nd wave of COVID leading to essentials only, budget planning etc, may be the reason. Once, life is back to normal, I expect OTT ad revenues to grow exponentially again," he added.

Mirum India Director of Media Preetam Thingalaya noted that the second wave has dashed everyone's hope of recovering lost growth in 2021. "Everyone was banking on the year 2021 to cover up for the lost time last year. We saw a minor upward trend at the start of the year 2021 across video platforms and other digital platforms and with IPL 21 in the pipeline, things were looking great and promising. However, the March lockdown and then IPL getting cancelled was a big hit at least for the platform that had the streaming rights. We saw major brand pausing or going slow on investments on digital."

He observed that the ad de-growth has been uniform across platforms and formats. He further stated that SVOD platforms have seen a lesser compared to AVOD platforms. "Also, I am sure AVOD might have suffered a bit but SVOD grew almost 2X or more in these times and we have enough and more data to prove this. Titles like Scam 1992 on SonyLiv and Mirzapur Season 2 on Prime which released on October 20 literally boosted their SVOD growth. Currently with titles like Radhe ( Salman’s movie) and Friends Reunion on ZEE5 have also helped to push SVOD. All these titles have only driven higher “Paid Subscription” to the OTT platforms. So while yes, there might be a de-growth in AVOD revenue; SVOD revenue might have grown substantially," he elaborated.

Former Xaxis India Country Head Bharat Khatri said that the JFM was a mixed quarter with major spikes in viewership due to IPL 2021. He further stated that Disney + Hotstar regained the number 1 position both in terms of subscribers & viewership on the AVOD environment. He also said that there was a massive increase in viewership on the homegrown vernacular platforms like Hoichoi, Sun Nxt, and AHA.

"Our economy has failed to fully recover from the pandemic downslide & same is the case for ad spends. Although, all market leaders were bullish with 20%+ growth during the start of the year, however with ongoing uncertainty & volatility brands are still worried as buyers become more cautious on purchase decisions. On the content side, IPL 2021 supposed to the biggest money-spinning league for Star & Indian Adex also got suspended mid way due to the ongoing Covid19 second wave has massively contributed to the de-growth, as most of the budgets were planned & locked on the sports league," Khatri said.

Interactive Avenues EVP Harish Iyer estimated that the OTT platforms will take a 15-20% hit in ad revenue in the AMJ quarter. He pointed out that other OTT platforms were anyway struggling as Disney+ Hotstar had sucked out a lot of ad monies from the market. He believes that the IPL cancellation will have an adverse impact on Disney+ Hotstar's revenue.

"In JFM, the impact on OTT was that the IPL was about to start. IPL had managed to attract a lot of sponsors on Disney+ Hotstar. In my estimate, if Disney+ Hotstar was expected to make Rs 400-500 crore they would have roughly booked 30% of that revenue. Nobody knows if the remaining 70% advertising will come back or not," he said.

Iyer further stated that advertisers pulled back after the IPL was postponed as the sentiment at that time wasn't that great. "Since sponsors had committed to the IPL they were like let this commitment happen but the moment the IPL was cancelled 70% of the advertisers would have held the money back. Brands were looking to drive brand + performance out of IPL. They would have easily used that money to drive further performance on their performance-led activation through search, social wherein they had to just acquire users," he stated.
OTT's loss will be Facebook-Google's gain?
According to Bhargava, OTT platforms have taken a lesser hit compared to Facebook and Google. "It would be safe to say that the impact is across platforms and mediums. Because of the DTC trend that has picked up in the last 1.5 years speaking purely for digital, the OTT does have a higher impact compared to platforms like Facebook, Google etc, that supports lower-funnel objectives. If we speak on a more holistic level, OTT continues to remain a go-to platform for advertisers."
However, Khatri believes that most advertisers are focussing on lower-funnel marketing goals to drive sales volume on e-commerce platforms & affiliates. This will benefit Google and Facebook as they support lower-funnel marketing objectives.
"No doubt Ad spends have moved towards digital & will continue to see higher growth in India on digital video but currently all active advertisers are majorly focusing towards lower-funnel marketing goals to drive sales volume on e-commerce platforms & affiliates. On the other side, new age D2C advertisers continue to find UGC video platforms more cost-effective in performance & reach as compared to OTTs," he averred.
Concurring with Khatri, Thingalaya feels that the clients will be making cautious investments, and YouTube by far becomes the safe bet, especially during these times. "So in a nutshell, if there was a video campaign, it might have run on YT instead of YT and OTT. Also, Lockdown impacts each and every platform or medium in a different way and not just OTT. Other large platforms are also experiencing a downward trend," he stated.
Key advertising categories
Among the active spenders, FMCG and digital native advertisers are still spending. "Within FMCG, certain segments like personal care and beauty in the negative. There has been no impact on the ad rates since the demand is less. The ad rates go down when there is high demand as players compete among themselves by cutting rates. This time, there has been no impact on rates," the revenue head quoted above said.
According to Mirum's Thingalaya, HealthCare, EduTech, Online Groceries, Online food delivery, and Entertainment are currently topping the chart on spends. However, FMCG, Auto, and retail are the ones holding and playing the wait and watch the game.
Khatri said that Fintech, Healthcare, FMCG, Cosmetic, Edutech, Gaming, Ecommerce continue to be active spenders. Telecom, Automotive, Retail, Consumer Durables are still awaiting some normalcy from ongoing shifts in consumer buying patterns.

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