Netflix has recently announced its plan to roll out its AVOD (advertising-based video on demand) service globally so that it is able to get onboard a larger user-base. The world’s largest OTT platform in the first quarter of 2022 is known to have lost 200,000 subscribers which is definitely a cause of worry. Media industry experts expect a further drop in Netflix’s subscriber base with mounting competition. An AVOD model under such circumstances could certainly come in handy. After all, especially in emerging markets such as India, there are still a large number of consumers who don’t want to pay for content. Netflix has already launched a more affordable subscription plan of Rs 199 per month in India in addition to its original monthly pack of Rs 699.
India’s AVOD market size, according to Deloitte’s TMT (Technology, Media, and Telecommunications) Predictions 2022 report, stood at $1.1 billion in 2021 and is expected to reach $2.4 billion in 2026. This explains Times Group’s three-year-old OTT platform, MX Player’s, ambition of not just becoming an entertainment super app but also give tough competition to the world’s largest video-streaming platform, YouTube through its AVOD model.
According to a CLSA (Credit Lyonnais Securities Asia) report, MX despite being a late entrant has managed to grab a 34% market share leaving Disney+Hotstar behind with a 26% share. Amazon Prime Video has a 11% share and Netflix 9%. MX’s large market share is obviously due to its advertising-led business model as opposed to the subscription-based or freemium models its peers have. “We have built MX to become a mass player,” explains Karan Bedi, CEO, MX Media. Bedi believes that only an advertising-led model would give them scale in terms of viewers. But isn’t dependence on an AVOD (advertising-based video on demand) model risky in an environment where close to 90% of the digital ad dollars are pocketed by Google and Facebook?
In fact, MX Player has also launched its subscription service MX Gold (at Rs 499 per annum). Karan Taurani, Senior Vice-President, Elara Capital, says that a SVOD (subscription video-on-demand) gives an OTT platform a steady source of revenue. “AVOD gives scale in terms of customer base or user base, but you can’t just rely on advertising as its contribution to the business is cyclical in nature, and it is a highly fragmented market. SVOD will give you a comfort level to invest into content, you can spend money on customer acquisition and do renewals with the existing customer. You have a sense of the cash flows as opposed to advertising which is dynamic in nature. You may grow but because of the competitive intensity you may end up losing market share,” explains Taurani.
Deloitte’s TMT report predicts the SVOD (subscription voice on demand) to grow from its current size of $0.8 billion to $2.1 billion in 2026. In fact, first mover Disney+Hotstar, actually witnessed a dip in advertisers during the 2022 edition of IPL (which is one of the reasons for the network not to have bid aggressively for the digital rights of IPL). New OTT incumbents such as OTTplay (which aggregates OTT content on its platform), despite having launched as an AVOD platform, are also going the SVOD way. OTTplay hopes to amass half a million subscribers within the next one year. “It all depends on the number of users you are able to acquire, the kind of user experience you are trying to deliver to a particular user,” explains Avinash Mudaliar, Co-Founder, OTTplay. The OTT content aggregator which claims to solve the dilemma of the Indian consumer of what content to watch finds subscription a viable model in the long run.
“The idea is to give the best content from across OTTs on a single platform, for which we need to serve at a price-point which is workable to the user. However, we have no bias towards AVOD or SVOD. In fact, one should never stick to any one model. Models change depending on the user. Be it A-ward or subscription we have to be ready,” Mudaliar further explains.
Advertising-Led
MX Media, however, is confident that it is advertising that will help to grow the business. “If you look at the latest reports, digital advertising has surpassed TV advertising. Ad dollars are now shifting, clients are adopting and the entire universe is digital first. You launch a new business and the first thing you do is advertise on Google and not on TV. TV is highly expensive, and you don’t know what your ROI is going to be. I was talking to somebody from big tech, he said around 15 million SMEs which are digital first businesses are not advertising on television. This is what is driving us,” explains Nikhil Gandhi, COO, MX Media.
Apart from selling its inventory a-la-carte, MX also has its own programmatic ad network which it has integrated with Google. It has also launched MX Advantage, which enables MSMEs to advertise on its platform. The advertisers can also do geo-targeting and reach out to their target audience. “We are also building our own MX Audience Network. We are tying up with publishers which is predominantly what Google does. We will be able to supply a better ROI so that you get your value and we also get our value. We want to be the biggest ad serving platform in the country. So, this is about expanding ad opportunities,” explains Gandhi.
Apart from aggregating shows of broadcasters and launching its own original shows (MX Originals), the OTT platform has also recently ventured into live streaming (MX Live) and gaming (MX Games). The platform earlier this year launched reality show, ‘Lock Upp’, which also had a live stream from the sets of the show. Similarly, in the second season of its popular original show, ‘Ashram’, the OTT platform has created customised games. “With gaming, the engagement has gone up by 1.5 times. What we have seen is that the user base of streamers is steadily growing with every passing week and that is really driving us to take bigger risks as far as content is concerned,” points out Gandhi.
The OTT platform expects its SVOD service to contribute around 10%-15% to its overall revenue in the long run, but direct monetisation says Gandhi would eventually contribute around 25%. “We want to create direct to consumer monetisation opportunities through our gaming in-app purchasing. We’ve just launched online gifting. There are three-four layers of direct monetisation which we are going to build.”
MX has also started investing in branded content under its vertical, MX Studios. “Here, we essentially do a lot of research and then we write a story as a script and take it to the advertiser to check if it suffices for their brand and then we start building the narrative and integrate the advertiser. So, it works for them, it works for us and the users. Last year, we did a series for Abu Dhabi Tourism- Wanderlust. This year, we are doing a show on mixed martial arts with actor Suniel Shetty as the host,” says Gandhi.
The platform claims that after YouTube it’s the second app to get over one billion downloads and that’s what gives it the confidence to surge ahead with a predominantly AVOD business model. So, how far is MX Player from profitability? CEO, Bedi, admits that it is still a while away from profitability. “Nobody in the industry is profitable, it takes a while to get to it. But we are clear that going forward we will replace TV.”
Elara’s Taurani does agree that MX’s strategy has definitely worked, but he feels that a large SVOD base will enable them to compete better with other players. “Content cost is high but the customers in SVOD are sticky,” he says. Coming back to Netflix, for a AVOD model, the platform would definitely relook its content strategy, at least in India. Its current metro-centric content may not work in the AVOD model, as it is all about appealing to the masses.
