Online video is still in its infancy in India – a market where the costs of both fixed and mobile broadband, coupled with limited WiFi availability, makes streaming full-length TV shows and films unattainable for most people.

Nonetheless, initial forays into this space, mostly in search of incremental ad revenue, are unnerving a US$7.7 billion pay-TV industry in the midst of a major push to boost subscription revenues by converting analog cable networks to digital TV.

“We can change the platforms that we go on to, we can change the length of the content that we deliver to the consumer, but if we don’t get consumers to value the content as much as we want them to, we are constantly going to be slicing the revenue pie without being able to extract more value from the consumer,” cautioned Walt Disney India MD Siddharth Roy Kapur.

Disney's India head was addressing industry stakeholders in Goa at last week’s India’s Digital Operators Summit (IDOS), a conference organized by Indiantelevision.com and Media Partners Asia.

India’s pay-TV industry has experienced waves of optimism and pessimism as it grapples with the market realities of an ambitious crossover to digital TV.

That digital transition is at a crucial milestone, with around 66 million homes now receiving digital TV from a total base of around 140 million cable and satellite subs, thanks to steady momentum in most big cities and major metros.

Limited scope to grow subscription revenue on analog cable, still the way TV is piped into around 74 million Indian homes, has created a fractious environment for channels and platforms, more focused on battling each other for a bigger share of revenue rather than working together to grow the overall pie.

The industry as a whole risks losing out on digital dividends – in the form of new revenue streams and new subsectors around premium content, broadband and value-added services – if this status quo prevails.

At the same time, OTT video, which like analog cable relies heavily on ad revenue, may foster the same dynamics holding back growth in traditional TV.

Providing TV shows and movies for free online devalues them in the eyes of the consumer, Kapur argued, making it harder to put a price on such content in the future.

“That’s something we should be wary of when are trying to drive reach with these platforms,” he warned.

“These are platforms for us to derive more value from the consumer, rather than put all our content out there and get into a subsidized environment,” he said.

“How we define the rules of engagement right now will define the future for us in many ways.”

AD DYNAMOS

Nonetheless, advertising rather than subscription is lifting industry revenues at present, thanks to an uptick in the economy.

Dynamic growth in online video advertising in particular, a market currently cornered by YouTube, makes the sector hard to resist.

At current expansion rates, online video advertising is on course to become India’s second-largest TV ad segment after Hindi general entertainment within five years, pointed out Gaurav Gandhi, COO of Viacom18 Digital Ventures, also speaking at IDOS.

“When you see that opportunity, you will be foolhardy not to go after it,” Gandhi said.

“Does it mean you will not do pay?” he continued. “Of course you will do pay, but you may not want the same content there as on the AVOD [ad-supported video-on-demand] services. You will have a segmented play.”

Viacom18 Digital Ventures, a new digital arm for the Viacom18 broadcast network which launched in July, is planning a direct to consumer streaming service of its own, joining existing services from other broadcast majors Sony, Star and Zee.

For established cable and satellite platforms meanwhile, the business model that sustained them in the past seems to be coming apart.

“The whole pay-TV ecosystem has worked though the aggregator model because we are able to efficiently bundle and sell easily consumable packages to the consumer,” said RC Venkateish, CEO of DTH operator Dish TV.

“In OTT, the risk is that people are haring off in different directions. That is dilutive, and will hurt the aggregation model,” Venkateish argued.

“It’s very difficult for individual broadcasters or content creators to monetize it, so the entire ecosystem goes down in value. That’s something we need to protect against, but we aren’t seeing that happening.”

Running a successful OTT platform isn’t easy however, especially when services turn pay. Broadcasters wrestling with costs, execution challenges and the need for continual innovation to keep OTT services relevant may strike distribution deals with aggregators in the future.

Incumbent operators need to develop broadband services of their own if they want to benefit, at the same time as driving consumer-oriented services for subscribers in the first phases of digitalization, while planning for the 74 million or so cable homes still watching on analog.

Leaders from multiple cable and satellite platforms taking the stage at IDOS painted OTT as an additive rather than competing service in a country where subscribers pay little for pay-TV, making it difficult for a disruptive online service to come in at a lower price, as Netflix has done in North America and Europe.

TWO Game changers

Nonetheless, the near-term outlook for India’s TV ecosystem is hard to make out, making it difficult for incumbent platforms to plot the way forward.

Much depends on two major new entrants, waiting in the wings.

Jio, a national mobile broadband service from India’s biggest private company, Reliance Industries, is due to launch by the end of the year, delivering an additional source of entertainment for millions of homes that are also on the radar of growth-oriented digital cable and DTH companies.

The money and strategic focus behind Jio could jumpstart a new ecosystem for mobile video, which so far has failed to impact traditional TV consumption in India, opening up a new competitive front for pay-TV incumbents.

At the same time, Nxt Digital, a headend-in-the-sky (HITS) platform backed by the Hinduja Group, another large conglomerate, is offering analog cable operators an alternative way to upgrade their networks with a readymade package of digital channels, having already signed deals with two of India’s biggest broadcasters.

Such an offer allows local cable bosses to stay independent, while curtailing the expansion plans of MSOs, who are looking for greater control over their own destiny as the landscape shifts with more direct access to last mile subscribers.

MSOs in particular risk being outflanked by changes in the competitive landscape if they unable to roll out new services, which will help then recoup past and upcoming investments in digital upgrades.

Fixed line broadband, a higher-margin business than traditional TV, is a potential lifeline, opening the door to a spread of additional services, from banking to OTT video, in addition to data.

Experiments around new revenue streams are taking place in pockets around the country.

Success however requires close co-operation with local operators who have the billing relationship with subscribers or direct access to the last mile, in order to build a business that can scale.

“Long-term sustainable business models need to be built,” remarked Rajiv Kapur, head of business development in India and Southeast Asia for Broadcom, a chipmaker and technology supplier.

“I don’t see how it can be done without broadband.”