OTT platforms can survive in the Indian market if they go the Hotstar-way

• After declaring that Netflix would never have ads, CEO Reed Hastings announced the arrival of advertisements on the platform as it struggles to meet its revenue goals in India.
• In fact, Netflix is renegotiating deals to put ads on its platform globally and will launch first in countries that have more mature advertising markets.
• Amazon Prime Video is the only over-the-top platform now that doesn’t have brand ads.
• While Netflix, Amazon Prime all started as subscription video-on-demand platforms, experts say that in an increasingly competitive marketplace, they will find it difficult to sustain without ad revenue.
• Disney+Hotstar was one of the first platforms to introduce a hybrid model in India and that seems to be the future of streaming platforms.

Netflix CEO Reed Hastings, once famously said that it will never have ads on its platform.

Hastings, who had once said that ads exploit users, is now looking at ads to grow revenues. The streaming giant Netflix, which introduced India to the world of international OTT entertainment, slashed its subscription price but is yet to find its foot in the market.

“The thing that frustrates us is why haven’t we been as successful in India. But we are definitely leaning in there,”

Hastings said earlier this year. On July 20, it reported that it has lost a million subscribers globally. And it looks like it’s losing its sheen in the Indian market too.

Disney+Hotstar is the most downloaded OTT app in India, followed by MX Player and ZEE5, as per App Annie’s State of Mobile 2022 report. Netflix India didn’t make it to its top 10 either in a crowded market place with over 40 OTTs vying for consumer attention.

Netflix said that its ad plans will start in the most mature markets first, but the Indian market has already reached there.

Advertising will bring more revenue to Netflix, Amazon and Hotstar

While some users were concerned about having to ‘skip ads’, advertisement-based video on demand (AVOD) models are money churners for OTT players. According to the TMT Predictions 2022 report by Deloitte, AVOD is expected to garner more revenue than subscription-based video on demand (SVOD).

The report predicts that India’s AVOD market will double from $1.1 billion in 2021 to $2.4 billion in 2026. However, it also predicts similar growth for SVOD from $0.8 billion to $2.1 billion.

The overall OTT space in India is expected to grow at a CAGR of more than 20% to reach $13-15 billion over the next decade.

Advertisement, subscription and a wide content library -- future of OTT should be hybrid

Netflix’s struggle in India points to the beginning of a new era. After Netflix introduces ads, India’s OTT ecosystem will never be the same. Netflix and Amazon Prime are the only two mainstream platforms in India without ads now.

Experts are confident that Amazon Prime will continue to hold its ground and not follow Netflix’s suit.

“Amazon Prime is unlikely to follow the AVOD format as the OTT service is a bundled service and comes along with a faster delivery for Amazon’s e-retail channel, almost like a deal sweetener. Also, Amazon has deep pockets and is under no pressure to create profits independently for this service,” N Chandramouli, CEO of brand intelligence and data insights firm TRA Research told Business Insider India.

Chandramouli thinks that the OTT landscape will continue to have both SVOD and AVOD formats, and a combination of the two. OTT platform Disney+Hotstar has been able to gain an edge here. It has been operating on a hybrid model that gives consumers more choices across plans and even limited content which is ad supported.

“Since AVOD is still in its inception, the consumer reaction to it is yet to be gauged. However, both formats will have their base and both are likely to exist side-by-side,” he added.

But it’s not only the SVOD players who’ll make the switch but AVOD players will too. MX Player, which has 34% market share as per CLSA, has been operating on an AVOD model. A month ago, it moved to a hybrid model and launched its annual subscription plan MX Gold at ₹299.

Lloyd Mathias, business strategist and independent director said that video streaming platforms will increasingly move to AVOD.

“Despite a growing OTT market, a 100% dependence on subscription revenue may not suffice for OTT platforms. While Netflix, Amazon Prime all started as subscription VOD platforms, in an increasingly competitive marketplace, they will find it difficult to sustain without ad revenue. There is so much content available free through a combination of user-generated content (UGC) and through AVOD platforms like YouTube, that consumers are spoilt for choice,” Mathias told Business Insider India.

In the long run, Mathias said that a hybrid model may be the most viable for both consumers and content providers.

“OTTs can hook users with free content (AVOD) and then entice them to pay for premium (SVOD) content along the way. The revenues from a hybrid stream will also make it possible for the OTTs to commission and carry exclusive high-quality content,” said Mathias.