India's over-the-top platforms may witness higher losses and consolidation if Disney+ Hotstar continues to offer premium content free of cost, according to Elara Capital.
Disney+ will provide free access to the Asia Cup and ICC Men's Cricket World Cup matches being held later this year to its mobile phone subscribers, according to a statement.
If this continues over the medium term, many OTT platforms may not be able to survive with low ARPU and free offerings, Elara Capital said in a June 9 note.
'Big Disruption'
Elara Capital said that no large OTT platform has been able to hike prices in the past six months, thanks to the disruption caused by free content offered by Jio Cinema.
"To compete with Jio Cinema in the digital video advertising segment, Disney+ Hotstar has decided to offer the upcoming Asia Cup and the Cricket World Cup free to mobile-only subscribers; we believe this will be a big disruption and change audience habits to pay for premium content."
The reason, according to Elara Capital, is that more than 90% of the OTT consumption is routed via smartphones as connected TV penetration remains low at 8-10%. This is due to low fibre broadband penetration and high broadband ARPU, it said.
"This means a section of the audience will watch premium cricket content free and it may take time for other OTT platforms to undertake price hikes and start charging customers," Elara Capital said. The brokerage does not expect most connected TV consumers to pay OTT subscription for watching cricket on TV.
This may result in a sharp decline in high growth subscription-video-on-demand revenue for Disney+Hotstar, Elara said.
If this free offer continues over the medium term, Disney+ Hotstar could also report a bigger fall in its paid subscriber base, which is already down 14% over the last six months.
The brokerage said India's OTT market should adopt 'freemium' method, with low average revenue per user for subscription. A freemium model means the company offers basic or limited features at no cost, while it offers advanced features at a premium value.
Offering premium content for free does not augur well, the brokerage said. India already deals with challenges like lower ARPU on OTT, high content cost, fragmented market and dominance of social, search and commerce in the advertisement market, the brokerage said.
"We believe this era of offering free content should be short-lived, as getting consumers adapted again to pay for content may take time."
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