Winners Amongst an Unprecedented Global Phenomenon
Amidst a period of strong globalization trends and increased interconnectivity over the past decade, loomed a global crisis that no one could have foreseen. The first appearance of the Coronavirus almost 10 months ago has since put the world at a standstill and has negatively impacted most, if not all, economies globally with economists estimating the cumulative losses across 2020 and 2021 to be valued over 12 trillion US Dollars equivalent to a loss of approximately 13.5% of global economy.
However, despite the global economic recession, a handful of industries such as Cloud Computing, Video Conferencing, E-Commerce, Media & Entertainment Platforms and E-Payments, have all managed to avoid the global slow down and, in some cases, seen significant growth despite the current global pandemic. Amongst Media & Entertainment Platforms are Over-The-Top (OTT) services which is an industry that has seen keen investor interest and will be the main focus of this piece.
Rise of OTT Video on Demand
Over the past decade before the rise of COVID-19, OTT media services have gained significant traction particularly in the area of Video-On-Demand (VOD) services. Pure OTT VOD services such as Netflix have transformed and disrupted the way content is delivered to the end consumer, putting significant pressure on traditional broadcast & media companies to stay relevant in an age of digital transformation.
Fast forward to today, the appearance of COVID-19 has served as a catalyst event that triggered a wide spread adoption of online video services and accelerated the trend of cord-cutting from the traditional broadcast and media companies that was already prevalent in many countries. Netflix, for example, has managed to acquire 26 million new subscribers in the first half of 2020 almost surpassing its 28 million new subscribers in 2019, leap frogging the growth of the industry by an estimated 5 to 7 years.
As a whole the industry is growing at a 13.8% CAGR and is expected to reach US$152.3 billion by 2024. The Transactional (TVOD) & Subscription (SVOD) VOD industry is forecasted to grow at a moderate 12.6% CAGR from US$53 billion in 2019 to US$96 billion by 2024 while the Advertising (AVOD) VOD industry is growing at 16.1% CAGR from US$26.7 billion in 2019 to US$ 56.3 billion by 2024.
Figure 1 Statista, 2020 & Broadband TV News, 2019
The TVOD & SVOD market is growing at a slower pace as it is largely dominated by US & China, which are developed countries with large mature markets, accounting for 36% and 26% respectively, while the AVOD market, on the other hand, is largely dominated by the APAC region accounting for 49% of the market with still significant headroom for growth.
Figure 2 Statista, 2020
Figure 3 Broadband TV News, 2019
Southeast Asia – A Puzzle Yet to be Solved
Southeast Asia is home to population of over 655 million across a number of countries with diverse cultures, languages and economies making it one of the hardest markets for global businesses to penetrate despite its large size.
Despite the presence of many US based OTT VOD platforms available in SEA, their US-pegged price points, lack of local content and localization prevented the adoption in many non-English speaking markets. Furthermore, many local & regional players in the SEA region saw Netflix’s success as an opportunity to capture the markets early and developed differentiated strategies to gain a stronger initial foothold in the market.
The appearance of COVID-19 has only served to accelerate this trend, boosting the average online weekly consumption of video content by over 60% with platforms such as Netflix, Viu, iflix and iQiyi seeing 115%, 274%, 188%, 500% growth in minutes consumed respectively.
Figure 4 Media Partners Asia, 2020
Figure 5 Media Partners Asia, 2020
Most players in the SEA region opted for AVOD model, where the service is provided free at the cost of watching ads on the platform, due to the sheer size of the market as well as low per capita income. However due to COVID-19, despite the increase in viewership during this period many businesses were severely affected and marketing budgets were cut which had a strong negative impact on revenue for AVOD models.
Malaysia’s iflix, an AVOD platform, is one of the region’s larger players with 25 million users and struggled with its impact on revenues which led to Tencent’s acquisition of its assets. Singtel, Sony & Warner backed, HOOQ, a SVOD platform, also filed for liquidation during this period and had its assets acquired by Coupang in July 2020.
With Southeast Asia gaining momentum as a region for companies searching for higher growth, large established players such as Netflix too have adapted to a lower per month mobile-only subscriptions plans and modified their distribution strategies to include scratch-cards. This gives credence to the SBP’s assessment that there is immense room for innovation and growth in this sector and region for OTT players looking to capture the large population base in the eastern hemisphere. It has become apparent that the strategy required for a service to succeed is its ability to (1) address a real customer want/need, (2) at an appropriate price or value to customer and built upon (3) a sustainable business model.
Strong Recovery & Shift in Focus Towards Strong Localized Strategies
Players in the AVOD market are expected to recover stronger than ever with substantially increased viewership numbers driven by the return of marketing spend as the virus winds down. India has seen OTT platform viewership increase by over 80% over the last 8 months and is likely to emerge as one of the leaders in the APAC region.
The fall of some established platforms have helped others identify that success is not solely based on the platform’s monetization model but rather a combination of cultural and behavioral preferences and understanding the consumers requirements. A shift towards a deep understanding of the market in the context of content, monetization, marketing and content delivery is also needed to achieve long term success within rapidly growing emerging markets.
Interview with POP TV CEO & Founder: Jyotirmoy Saha
To help us understand more about the OTT VOD space in Southeast Asia, we spoke to Founder & CEO of POP TV, Jyotirmoy Saha (Moy), who shared with us his own insights and experiences entering into this complex space and how he sees the space evolving in the coming years.
SBP: How did you begin your journey in Media & Entertainment? What is your story behind founding POP TV and August Media Group?
Moy: I have been a media and entertainment professional my entire career. I got my first real job at UTV – which after an acquisition later became Walt Disney India. My stint of over 13 years at the company gave me the opportunity to work with almost all content formats starting from TV Dramas, to Factual Entertainment, Events, Game Shows and Kids. I was also lucky be part of UTV’s enviable growth story – the journey from TV content producer to a major media company. I could not, anywhere else have imagined getting an opportunity to work on so many different sizes and types of businesses and transactions at the age as I was during my years there.
UTV was home to a very entrepreneurial environment, mostly attributed to the founder, Ronnie Screwvala being such a visionary himself. Having worked and learnt from one of the best, it was only natural for me to try my hand at being an entrepreneur too. I set up August Media Holdings a decade back and since then we’ve been very successful at creating impactful content for the young. We now work with the biggest names in media from around the world and our slate of intellectual properties are quite widely acclaimed and awarded. Our core competencies lie in telling stories and we have chosen to do that for the younger demographics worldwide.
The idea of POP TV developed as I watched vast gaps in the digital entertainment delivery platforms in Asia. There are still large populations in Asia (and worldwide) who are not being lured out of linear free to air TV simply because no one is creating platforms that is just right for them. If we look back into the history of regional Pay TV business in Asia, one would easily spot a massive localization trend amongst the biggest content brands to reach the penetration they have today. Many of these brands have become very different from their original launch versions in Asia and had to be localized not just for language, but even content mix, delivery and business models in order to achieve success. In OTT though this practice has barely scratched the surface. The gap that is felt right now is attributed to the huge number of online video consumer problems that are yet to be solved in the emerging markets of Asia.
SBP: In your perspective, what are the most important factors for achieving operational & financial success as an OTT player?
Moy: While every business has a million intricacies, I believe that there should be three main lookouts in the OTT business targeting regional Asia.
Content, Content, Content – 90% of viewership will be delivered through just 10% of your total content mix in each cultural geography. The vice versa relationship is also equally true. Therefore, what you choose to pay for to include in your library is a major consideration. Knowing your market and precise targeting of your content is absolutely necessary. This business is meant to be led by content specialists and the knowledge of content creation and curation is key.
Payment and Collections – When pricing OTT services, one has to appeal to not just the consumers’ affordability but also their buying habits. Spending US$2 – $5 along with data costs are significant enough to impact buying decisions in large parts of the Asian mass market. That is unlikely to universally change completely in the next 5 to 7 years. Payment modes also play a major role in the buying decision. For example, eWallet credit deduction, Telco load deduction makes a general assumption that the wallet generally maintains a balance that is more than the subscription price. Statistics show in many markets that, that is generally quite rare. Being able to crack this through the right sales and pricing strategy is key in this business.
Distribution Strategy and Technology – Although all OTT services are generally delivering video content to viewers, the distribution economics is quite different from television. In television delivery cost to per viewer reduces with every additional viewer, in OTT it is the opposite. This becomes even more stark in an environment where data affordability is low to begin with. This relationship makes technology choices and distribution pipes a very important consideration as customers expect reliable, true random-access video play experience with low buffer times. Delivering this in poor network coverage geographies is always a challenge. Secondly, customers also expect good data bundle deals that tend to cost a pretty penny either at the telco or to the service provider. Solving these problems are a key to an effective OTT business.
SBP: What is your view on the fate of players such as iflix and HOOQ? What may have been the reasons for the same and how are you avoiding those pitfalls?
Moy: In every emerging industry there are always the early players end up setting up the stage for many future businesses. iflix and HOOQ perhaps helped to set the stage in the ASEAN region. But their struggles just reiterate that the Asian mass market model is yet to be solved. Inclusion of a few popular mass market titles does not create a mass market service. It is a complex web of content titles, their curation, the distribution of the service, the pricing, the communication and locally relevant technical features that together make what is likely to be the ideal service. It is also important to identify clearly your core target audience and work for them more than the broad target.
Unlike most services in the market POP TV does not attempt to target the top 1/5th of the market. In the larger SEA region, more than 85% of the population classify as SEC C2, D & E. That population is hugely underserved despite high penetration of digital devices. Everything that we have put into the service is keeping in mind such as population, their work behavior, commute routines, buying habits, where they shop, how they shop, how they pay, when do they watch, family values, personal values and many such data points. Our whole approach and technology has been driven by all these factors and not solely on things like pricing and content. The service intends to appeal only to the Asian middle-class sensibilities and does not pretend to be anything else. We intend to follow a very focused geographic strategy as well. I also believe that much of the good work of creating mind space for OTT services has already been done by others before us. We hope to benefit from that too.
SBP: What does the purchase by Tencent or Coupang herald for players such as yourself?
Moy: The entry of Tencent, Coupang and iQiyi heralds the era in Southeast Asia where consumption of video content over internet protocol devices will not just be mainstream but universal. General entertainment services for those who can afford is the low hanging fruit and will of course see a lot of immediate competition in the coming years. But apart from that, many niches will also open up – niches that are defined by both content mix and socio-economic target segments.
In this discussion, one must remember that much of the middle class in SEA still finds data too expensive. When data access does become progressively more affordable, consumption too will increase putting pressure on data affordability again. Currently the delta between device time that people have and the price of streaming video data for that much time, is still quite wide. This too will naturally lead to more niches. I also expect more players here with enough space for new entrants at least for the next 3-4 years.
SBP: In an age of countless digital services there has been discussions around “Subscription Fatigue”, people are increasingly overwhelmed by the number of subscription services they have to manage. How do you see this trend impacting the monetization model of OTT VOD services globally?’
Moy: These are just the early days of OTT services. While delivery and access technologies might have changed dramatically, human desire for good content hasn’t really changed that much. This whole scenario has already played out before with Pay TV. Three factors in my opinion will drive to counter OTT Subscription Fatigue issues.
Firstly, we will soon start seeing some meaningful bundling/ service aggregation technology that create single destinations to multiple services. In Pay TV, the set top box managed that but for digital tech, it would just take a different shape with the same effect.
Secondly, market consolidation that brings multiple services under one umbrella will be a big factor. M&As activities like the ones in which we have seen Disney+, Fox+, Hotstar and Hulu come together will be more common. Many of these will be driven not just by content libraries coming together but customer bases and distribution monopolies coming together.
The Third being the negative factor of Gaming and Social Media driving people away from time spent on OTT fatigue. Although in the long term, I believe technologies will enable Gaming and Video bundling as well. We have already seen some of that take place with OTT services accessibility from Playstation and Xbox platforms. A handheld device version of that too is not really far away.
SBP: In the context of emerging countries such as India, Philippines and Indonesia, where network infrastructure is not as well developed, how crucial is 5G technology and how long will it take for these countries to really capitalize on it?
Moy: In this context, India’s markets are very different from other countries such as the Philippines or Indonesia, the level of data democratization in India is unprecedented and therefore will see a completely different trajectory in OTT adoption. Southeast Asian data connectively though will play out a little differently.
5G is not a really a necessity for decent quality video over internet protocol. Reliable 4G is already more than capable of delivering that. Telecom infrastructure spending always follows step graphs. When spending takes those sudden jumps, it usually goes into the latest technology. Naturally one would assume that coverage improvement and service reliability in many areas of SEA will be driven by new 5G capital expenditure. That can only augur well wider coverage and therefore OTT usage in general. Our tech keeps 5G in mind and follows a design distributed architecture of radio access hotspots not constrained by cell towers proximity. Much of that network will also enable micro payments, location based advertising and other data transactions in the future.
All that said, even a country like Singapore will have universal 5G only by 2025. I think geographically complex countries like Philippines and Indonesia will require much more time for 5G adoption at the mass market level. Apart from Telecom infrastructure, 5G adoption talk in these countries also make an assumption access to 5G capable devices at the hands of every consumer. I believe that within that time frame OTT itself will have also taken a far more complex shape and will require far many more considerations that that of today.
SBP: What is the OTT landscape like in Philippines? What are the main factors to consider as you launch your services in a new country? What are you doing to set yourself apart in a crowded market?
Moy: The Philippines market is riddled with complex environmental issues involving data access, data reliability, data affordability, payment methods, and piracy. Many of these factors have perhaps contributed towards the early exit of some players. It is also a market with roughly 60 million unique connected devices. Not more than 5% of those have been converted to regular OTT customers. So, the headroom in this business is still quite large. This is corroborated by the fact that linear TV viewership covers almost the whole population.
Currently the market seems crowded only because the fight is for the same set of eyeballs. I believe that the pie itself will expand dramatically and there will be space for at least 7-10 players who will each find their niche. We are already seeing that in the more developed markets. Disney+ entry literally increased viewing and its subscription growth hasn’t really come at the cost of Netflix subscriptions. Peacock, CBS All Access and other newer services are still coming in and growing at the same time without really disrupting others.
We believe our competition is more from other time spent on mobile phones. Social media and games are probably a bigger competition for us that other video content delivery systems.
SBP: What is your initial reaction to Netflix announcing its new mobile only pricing and distribution strategy priced at around US$5 for the Asian/SEA markets?
Moy: Netflix plays a very important role in our markets. They’ve created an aspirational service that will help many consumers make the journey towards digital video consumption. That is very important to players like us too. Our fundamental difference though would always be how we curate our content and create the package that is right for our audiences. The Netflix target market is quite different from ours. Their price point too is not going to work for most of our consumers. $5 is the cost of eating lunch for a working week in most parts of Asia. That is even before we take data cost into account. I believe that, in the foreseeable future premium services will remain targeted in Asia towards the top socio-economic brackets as there is still so much ground to cover there.
SBP: What would like your legacy to be about?
Moy: In relation to the work I do, I would like to be remembered for building a platform and network that delivered fulfilling stories to millions. While it will take a huge amount of tech innovation to get there, I would like that tech to be almost invisible.
The platform that we are building is not just right for penetrating deep into the middle class, but also for aggregating multiple digital services within the same delivery path. Broadly we plan to have significantly changed digital behavior for a sizeable population in Asia. This metric includes not just the use of our platform but also a fan following for our content we deliver. Of course, we also have very clearly thought out financial goals but, I believe we will naturally achieve those if we strive and achieve the above.