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Thematic: India Video OTT - Disrupt or get Disrupted 2.0!

India Video OTT - Disrupt or get disrupted 2.0

 Reliance Jio’s launch in September 2016 has led to ~90% fall in data prices and 7x increase in data consumption per data subscriber! ‘Video is the bait’ for consumers, as telecom companies (telcos) drive data consumption higher. Video content creators are able to reach the audience directly, digitally, as distribution shackles are broken, which is making investors question the future of television in India.

 India’s time spent on digital is very low and is bound to go up as internet penetration rises (China has seen 53% growth in time spent on digital in last 5 years). Although digital video in India is expected to spurt (led by convenience, lower data prices, increasing internet penetration, exclusive differentiated content and strong push by aggregators), we firmly believe in India’s television story.

 Our optimistic view on India’s television industry is pegged on the fact that (1) India’s TV audience is massive with 566m daily tune-ins and 224 minutes daily time spent, (2) a whopping 21% growth in youth viewership in 2017 despite the over the top (OTT) deluge, (3) digital video growth is led by it becoming the second or third screen as 97% of India is single TV homes, (4) no Netflix like super-aggregator in India as TV content is guarded by top broadcasters, (5) investment in digital content pales in comparison to TV (our analysis shows that only ~410 hours of ‘original’ content for digital has been created in India yet) (6) there is no economic reason to cut the cord (low pay-TV ARPUs; our analysis shows that TV delivers the highest value in terms of cost per minute), (7) there exists poor fixed broadband penetration and (8) lastly, from an advertiser perspective, TV viewership is more valuable than a similar viewership on digital video. We present learnings from how digital video OTT has grown in the US and China.

 We expect both TV and digital video to grow handsomely over next 3 years. Currently, we estimate digital video at ~8% of overall video advertising (TV plus digital video) in India as of 2017 end. With more than ~35% CAGR, digital video advertising is expected to garner almost 25% share of the incremental ad spends on video advertising in India over next three years! By the end of 2020, we expect digital video to amass ~13% of overall video advertising in India!

 We endeavor to answer another oft-asked question, “Would Jio be a threat to Indian TV?” Our analysis shows akin to Tencent (China), Jio is creating a universal digital services ecosystem so that all consumer needs (such as video, music, social, gaming, e-commerce, healthcare, payment, education, travel, etc) can be catered to in house. While it has invested close to ~US$800m in content and is the largest aggregator of (TV) content on the digital platform, we present our arguments on why Jio would be more of a collaborator than a competitor, at least in the medium term!

 Lastly, on the fixed broadband side, we believe cable Multiple System Operators (MSO) have missed the bus (barring a couple of them) on turning their networks broadband ready on account of under investing. As such, we believe telcos could emerge winners in the MSO space, as they try to build triple/quad play offerings.

 Buy content owners and DTH

We reiterate our Outperformer rating on Zee Entertainment (largest owner of TV content) and Sun TV (largest owner of film content) as good content can be monetized on both traditional and digital mediums. We reiterate our Outperformer rating on Dish TV, as we do not foresee a ‘cord-cutting’ phenomenon in India over the next 4-5 years; moreover, the company’s recent merger with Videocon D2H offers immense revenue/cost synergies.