The OTT space in India may have got a huge boost in terms of users in the recent past, especially during the Covid pandemic, but it hasn't helped the platforms much as they continue to struggle for revenue. With several OTT platforms running into losses, consolidation or bundling could prove to be a saving grace, believe industry experts who say it will enable the large players to divide their fixed costs and acquire viewers at a larger scale to enable commercial viability.

exchange4media spoke to industry veterans to get their view on whether consolidation is the future of OTTs to sustain and in what ways can they recover from the losses and at the same time make themselves profitable.

According to Vishal Shah, Managing Partner, EssenceMediacom India, commercial viability and monetization have been a key concern for OTT platforms and they are taking the route of consolidation so that they can offer exclusive content.

“The recent consolidation we have seen with various platforms are for different strategic reasons. OTT platforms are taking the route of consolidation or partnering with others so that they can offer exclusive content and cross-promote each other's offerings as well. Consolidation will also help to adopt new technologies or approaches that could give them an advantage over competition.

“This is a space that will definitely see an explosion in my view. It is a journey that the category is seeing given the high interest from viewers and will continue to see disruption,” Shah told e4m.

According to him, there will be large players who would want to dominate consumer attention and time, like how the media industry has evolved over the past decades across TV, Print and Radio.

“Platforms have yet to decide how the business model will be profitable and sustainable and till there are some clearly proven models on this, we will see a lot of traction in this space,” Shah said.

Karan Taurani, Senior Vice President- Research Analyst (Media, Consumer Discretionary and Internet) at Elara Capital, shares that OTT platforms are taking the route of consolidation because for the last five years, not even one of these platforms have emerged profitable.

“We have not seen a single OTT platform emerge profitable for the last five years. So smaller platforms are taking the route of consolidation. Even aggregators, however, have not been able to sustain this business model,” he said.

Taurani believes that consolidation will arrest the content cost inflation and lead to better distribution mechanisms.

“The bargaining power will also improve for the platforms vs distributor because currently the bargaining power is very heavy for the distributor as they have multiple platforms to distribute but the OTT platforms don’t have too many options when it comes to telco vendors,” he said.

According to Divya Dixit, Business Strategy and Growth Advisor, consolidation is definitely being chosen as a preferred methodology due to the promise of an optimised sustenance model for OTT.

“Consolidation is the best way to get access to a larger audience with zero spends. In fact, for smaller platforms, it just makes far larger sense to be a content pipeline that uses the aggregation model to distribute.

“There are enough aggregators like telecom players or broadband players that use content as a bait to push data or the OTT aggregators that believe in bundling and scaling up the bundled deals,” she said.

However, in a contrasting opinion, SonyLIV’s former Business Head Uday Sodhi said he does not see any consolidation happening in the OTT space apart from MX Player.

“I do not see any consolidation happening apart from MX Player. It will take a few years for OTTs to become profitable. They all are focusing on acquiring customers right now,” he said.

Throwing light on the reasons behind OTT platforms making losses, Sodhi said, “OTT players are making losses because we are at the early stage of market development.  Most people are trying to acquire users. Mid-sized players or regional players will have to consolidate with big ones. The big players still might not be profitable as they will have to invest in the content.”

According to Taurani, most of the OTT platforms are losing money due to high content cost, distribution cost and customer acquisition costs.

“OTT platforms are making losses because India ARPU (average revenue per user) is very low. It is a price-sensitive market. Advertising market is dominated by e-commerce. So, advertising potential is low. Content cost is phenomenally high so the market is fragmented to many players. Distribution cost is also high as most of these platforms have to spend on customer acquisition which is expensive or if they tie up with telcos and OEM (original equipment manufacturers), they have to give cheap discounts on rack prices. Because of these reasons, economics are not working out and OTTs are making severe losses,” Taurani told e4m.

Experts feel it is too soon to say if consolidation can make OTTs profitable but it can certainly lower the losses if executed correctly.

“While consolidation is a route to reduce loss making, this is a space where content is very critical and is enabling a large variety of on-demand content which is gaining traction and popularity,” said Shah, adding that the key to become profitable will be a disruption in the business model which we are yet to see.

According to Shah, the current popular commercial models, based around advertising and subscription, will need to change for OTTs to become profitable.

“Technology will need to be leveraged to create a dynamic business model that will enable commercial viability and profitability. Leveraging AI and crowd sourcing for content development are other areas that could help reduce cost of content creation and make the platforms profitable,” he said.

As per Taurani, “It is soon to be said that consolidation will help loss making platforms sustain. It will provide some respite and could lead to a lot of changes. If a large player takes over a small platform, a lot of rejigging can happen in terms of content strategy, distribution, partnership etc. There will be lower losses if the execution is right.”

He added that a lot of things need to change for OTTs to become profitable.

“From a customer standpoint, ARPUs need to move up but given the free content strategy of big players like JioCinema or Hotstar, I don’t foresee ARPUs moving up in a price-sensitive market like India. Distribution cost needs to come down. Consolidation will also drive profitability as it will reduce tech cost and content cost,” he said.

Sodhi, however, believes that consolidation will not help in making OTT profitable.

“Consolidation will not help in making OTT profitable because the purpose of that is to only gain customers, not profit. Their focus currently is on acquiring customers because of which they are losing money and not making any profit,” Sodhi said.

Talking about impact of consolidation on viewership and subscription, Taurani, asserted that consolidation will have a positive impact on viewers and subscribers because consolidation means you have a wider variety of content offerings which means you can reach out to a wider audience.

“So, it has a big positive impact on viewership. I am not sure how positively it will impact subscriptions. It enhances your bargaining power in the ecosystem. Consolidation or bundling is the way to go ahead,” he said.

Sharing a similar view, Vishal Shah said consolidating will surely provide subscribers with a more comprehensive entertainment experience, allowing them to access a wider range of content and features.

“This can be particularly attractive to users who are looking for a one-stop-shop for their entertainment needs. However, whether this will have a negative or positive impact will be a wait-and-watch situation as consolidation can also lead to issues such as higher subscription costs, redundant content, or a lack of focus on specialized content,” he said.

According to a recently released report by FICCI, currently 45 million households are paying for one or more subscription video on demand (SVOD) services, and the number will grow to 52 million by 2025, if current pricing is maintained.