News on streaming has been flooding in from around the world these past few weeks. Netflix declared dismal earnings and its first drop in number of subscribers in over a decade; CNN+, the much-hyped streaming cousin of the ubiquitous news network, lasted barely a month before it was switched off by its new owners WarnerDiscovery; and back home in India, former Star/Disney head Uday Shankar teamed up with his former boss James Murdoch to buy a big chunk of Viacom18, Reliance Industries' media arm, to go big on streaming.
I have written about the tough economics of streaming before, but let me focus here on the ongoing battle for control of the world's fastest-growing streaming market – India.
Netflix's Loss, Amazon's Gain
In recent weeks, Wall Street has soured on streaming companies, raising questions over the business model and future profitability. Stocks of all media companies with large investments in streaming have been dragged down after Netflix posted disappointing earnings. It's ‘damned if you do, damned if you don't' for large broadcasters like Disney, Paramount, NBC, and WarnerDiscovery, who were told redemption and stock revival lies in moving their legacy operations to streaming.
But in India, it looks like we are just getting started. In late April, Amazon announced 41 new titles in various Indian languages.
Presenting a power packed line up of content to keep you entertained! 💫 Immerse yourself in these stories and #SeeWhereItTakesYou 🍿#PrimeVideoPresentsIndia pic.twitter.com/QfKrP8IEJW
April 28, 2022For Amazon, this is a big opportunity to stay ahead of Netflix in a large market like India where the latter is struggling. So far, Amazon Prime Video has managed to get the Indian market right, aggressively chasing local content in various languages instead of relying on global content. Netflix too had made some promising moves with shows like Sacred Games but has struggled to keep up.
Netflix has the disadvantage of having to chase subscribers in a highly price-sensitive market while Amazon distributes Prime Video free to all its Prime customers and scales faster.The Netflix website on a laptop computer at the Pocket Aces studio in Mumbai, on July 29, 2019. (Photographer: Dhiraj Singh/Bloomberg)
Amazon also launched Prime Video Channels in India a few months back which makes it a serious contender in over-the-top distribution as well where it partners with other OTT players like Discovery+, and Eros Now among others. Prime Video has over 350 channel partners globally, making it less reliant on just one business model.
Disney+, the other remaining member of the global streaming triumvirate, continues to be the market leader in India as Disney+ Hotstar. A big reason for its success is sports rights, which in India, is a pseudonym for rights to the Indian Premier League, one of the biggest and most lucrative sporting events in the world. That dominance is now going to get tested.
IPL Frenzy
The biggest challenge with streaming has been the ever-growing mismatch between content acquisition costs and the ability to monetise that content.
Netflix spends close to $20 billion on content with over 220 million subscribers and it's still under pressure even though it is arguably the most robust of the streaming companies.
This has led to content inflation across categories, and no content costs are as inflated as sporting content.
The media rights to the Indian Premier League for the next five years are up for grabs and bidding begins middle of June. Remember, Star (and via that, Disney) held it for the last five years and had handsomely outbid everyone then. At Rs 16,000 crore, Disney managed to turn a profit on the property only in its fifth year of holding the rights for both television and streaming. This time around, the Board of Control for Cricket in India is splitting TV and digital media rights for the first time, to reflect the growth of streaming. The base price for digital alone begins at a whopping Rs 12,000 crore, which means it will finally go for a price much higher.
At such an expensive price tag and amid falling viewership for the franchise, you would think it would find fewer bidders. But looks like the big players have put subscriber growth ahead of economics this time as well and everyone is bulking for the fight.Ravindra Jadeja of the Chennai Super Kings, in the IPL game against Royal Challengers Bangalore, in Pune, on May 4, 2022. (Photograph: IPL/BCCI)
While the contours of the $1.8 billion Viacom18-Bodhi Tree deal are unclear, it looks like Mukesh Ambani gets a part of his IPL bid funded and also gets an executive on board who has done it all before. It's familiar territory for Shankar who snapped up the last IPL rights when he was the Star India chairman in the lead up to the Disney-Fox merger. Those rights at those prices likely helped bulk up Star's valuation considerably for the Murdochs but never really made any money for Disney thereafter. It did, however, help Hotstar grow its subscriber base and Disney fashion its global streaming strategy from those learnings.
For Ambani, much like for Amazon, the game is bigger. The IPL rights play into his grander vision of using his vast content business (TV, streaming, digital) to expand his Jio mobile and broadband platforms and vice versa. Eventually, the Jio ecosystem will likely offer more and more services that connect every part of Ambani's consumer-facing businesses. But Ambani seems to be learning from AT&T's disastrous acquisition of Warner Media and its subsequent merger into Discovery – pulling it all together sounds neat but the content has to be a separate business that needs executives who can make it stand on its own.
Apart from Disney, Zee-Sony, and the Reliance-owned Network18, Amazon announced that it would be getting into live sports streaming as well, and sports betting firm Dream11 is also mulling bidding for the rights. Amazon has deep experience in streaming from operating Twitch and could be a formidable player if it gets hold of the rights.
A smartphone displays the Apple App Store page for the Twitch streaming app, operated by Amazon, in London, on Sept. 17, 2020. (Photographer: Hollie Adams/Bloomberg)
Finding The Money
At the end of all this frenzy, it will boil down to pure economics. Can streaming really sustain itself? So far, the answer has been elusive even in developed countries with more pricing power than India.
In the United States, there is a genuine slowdown in streaming subscriptions as people return to a semblance of post-Covid normalcy. They don't want to sit at home glued to a streaming network as they have most of the last two years. This was bound to happen and Netflix kept warning it would. Now, these streaming giants are trying to find new ways to continue to keep engagement high and monetise better. Netflix is embarking on a version with ads, for instance, which a few years ago was unthinkable. This, in some ways, brings the industry full circle.
Most of the mergers of large media companies in the U.S. over the last couple of years have occurred to counter Netflix and to build up a sustainable subscription business. Now, Netflix is getting into what they were all doing in the first place – selling ads around content.Billboards advertise Netflix films Ma Rainey's Black Bottom and White Tiger, left, on Sunset Boulevard in Los Angeles, California, U.S. on Monday, April 19, 2021. Netflix Inc. is scheduled to release earnings figures on April 20. Photographer: Bing Guan/Bloomberg
India has several lessons to learn from it. While cord-cutting is still not a big challenge to conventional media consumption, it's bound to happen in India too as 5G and high-speed broadband become more common. Streaming economics—content costs, subscription, and digital ad pricing—will then have to calibrate to that reality very quickly if it were to avoid the pitfalls you see elsewhere.
About five years ago, Netflix CEO Reed Hastings famously said that Netflix competes with ‘sleep.' Five years on, we are finding out now that ‘sleep' is the least of Netflix's—or for that matter, streaming's—problems.
Parry Ravindranathan is currently the CEO of Converj, a fintech start up he co-founded. He's also been a journalist and a media executive working in senior roles at Bloomberg, Al Jazeera English, Network18 and CNN.
The views expressed here are those of the author and do not necessarily represent the views of BloombergQuint or its editorial team.
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