Bollywood grapples with shrinking OTT deals as film acquisition costs drop 40%

Bollywood, already grappling with multiple challenges—ranging from fewer film releases to inconsistent box office performances of big-budget productions—is now contending with another setback: over-the-top (OTT) platforms are becoming increasingly selective in their film acquisitions. Alongside this selectivity, these platforms are engaging in tougher negotiations over acquisition costs, industry leaders told e4m.

Not all films are being acquired for streaming platforms nowadays. Only those that achieve substantial box office success often make their way to OTT platforms. Consequently, this shift has led to a notable reduction in movie acquisition costs.

“On average, the movie acquisition cost has dropped by 25-40% compared to two years ago. The acquisition cost largely depends on the film’s box office success, cast and budget of the film,” said Manish Kalra, Chief Business Officer of Zee5.

“During the COVID era, when content was in short supply, OTT platforms went on a buying spree, paying hefty prices for films. This allowed filmmakers to recover almost the entire production cost through OTT, satellite and music rights, with OTT rights comprising the lion’s share. However, the dynamics have shifted now,” Kalra noted.

There’s no dearth of good content anymore. OTT platforms have since diversified their portfolio, producing more original content, forging partnerships with other players and telecom operators, and dubbing foreign-language content as well, Kalra said.

Vibhu Agarwal, founder of Atrangi and Ullu Apps, says he has gradually reduced film acquisitions over the past couple of years. He elaborated, “Filmmakers often have unrealistic pricing expectations that don’t align with our audience or market conditions. We now only acquire films that fit our pricing model and have already been released and succeeded at the box office. This ensures a proven market and reduces financial risks.”

Only blockbuster films manage to command over Rs 50-100 crore for OTT rights, leaving the rest to settle for modest deals, industry experts noted. This trend has put significant pressure on filmmakers, with many struggling to recover production costs due to dwindling theatre audiences.

The slowdown in movies’ OTT rights has come at the time when major streamers like Netflix and Amazon Prime Video are narrowing their focus to big-ticket films and high-profile shows. Simultaneously, the ongoing Disney+ Hotstar and JioCinema merger has led to a pause in certain activities, further disrupting the market.

The OTT players have all reasons to be alarmed and prudent. After all, India’s SVoD subscriptions have plateaued at 99.6 million active users, according to the Ormax OTT Audience Report 2024. Moreover, the average number of platforms subscribed to by each paying user has dropped from 2.8 to 2.5 in 2024, reflecting a reduced appetite for subscribing to multiple services.

Some players have not changed their strategy though. “Our movie acquisition success rate continues to be very good, a trend we maintained throughout last year, and we remain committed to sustaining this momentum moving forward,” Ravikant Sabnavis, CEO of aha, tells e4m.

Big filmmakers from the South Indian film industry continue to command high prices for OTT rights. Director Sukumar’s Pushpa 2, starring Allu Arjun and Rashmika Mandanna, reportedly sold its digital rights to Netflix for Rs 275 crore ahead of its December 6 theatrical release.

Earlier, Prashanth Neel’s KGF: Chapter 2’s rights were sold to Amazon Prime Video for ?320 crore.

However, both films still fall short of RRR, whose OTT rights was believed to have fetched ?350 crore. Featuring Ram Charan and Jr. NTR, the film also gained international acclaim, winning an Oscar and a Golden Globe.

Industry Consolidation and Budget Cuts

India had close to 57 OTT platforms in 2023, according to Ministry of Information and Broadcasting data. This includes global streaming service providers (such as Amazon, Disney-owned Hotstar, SonyLiv, and Netflix) who compete with domestic service providers (such as Zee5, Voot, and MX Player-now acquired by Prime Video), as well as a host of regional and ultra-localized players.

Some platforms have since merged or shut down, while the remaining players are focusing on cutting losses and tightening content acquisition budgets. This marks a shift from the earlier approach of massive investments aimed at subscriber growth and content expansion.

Previously, large media companies treated OTT ventures as future-focused investments, channeling profits into these platforms. However, with subscriber growth plateauing and competition intensifying, these companies are now prioritizing sustainability. Traditional business profits are under strain, and external funding is harder to secure, resulting in reduced OTT investments.

Decline in Originals?

The number of Hindi originals—both web series and films—produced by leading platforms has dropped from an average 100 each three years ago to 70, according to industry observers.

Karan Taurani, Media Sector Analyst at Elara Capital, remarked, “Most OTT platforms have reduced the volume of their originals. There’s been a 20-30% cut in terms of the number of shows, series, and films being released, particularly Hindi films. The decline is visible across both films and original series.”

Regional content on rise

Meanwhile, regional-language streaming platforms have tried to take advantage of bigger players going slow on movie acquisitions and production of original content over the past few months. “Smaller OTT platforms have come up as a saviour for film industry as they are acquiring smaller budget films, albeit at lost cost only,” a filmmaker told e4m.

In India’s vast and diversified consumer market, demand for streaming content based on geo-demography is on the rise, both within India and internationally from the considerable Indian diaspora. No surprises that the country is witnessing a boom in regional content and platforms created to address this demand.

For instance, regional markets are driving almost 50% of Zee5’s total consumption now, and Tier 2, 3, and 4 cities make up about 40% of their subscriber base, up from a very small number two years ago, Kalra said.

According to a 2022 report of Deloitte, India’s OTT market may record a compounded annual growth rate (CAGR) of more than 20% to touch $13 billion–$15 billion over the next decade, riding on original content and pricing innovations.

The share of regional language consumption on OTT platforms is expected to cross 50% by 2025 from 30% held in 2019, easing past Hindi at 45%, the report said.