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13 Jun

No country for paid content

Every major global business in the last decade has expressed a wish to expand in India.

The reason? Access to a large market (literally, our population) is one of the major factors that lures most businesses. And from the outside, the prospect seems totally logical and lucrative. A higher volume of people means more people buying your product or service. Should follow logically, but it doesn't.

As hilarious as it might sound, eventually, every B2C content business here ends up turning B2B in a way, where the consumer isn't paying for the content but other businesses wish to pay to advertise on the platform!

Amazon India introduced MiniTV in May 2021, a complimentary streaming service supported by advertisements conveniently accessible within the primary shopping app. Although it had a modest beginning, Amazon is actively investing in MiniTV, as it has proven beneficial in reducing customer acquisition expenses and increasing user engagement within the app.

Even Sony-LIV, a streaming service launched in India in 2013, was in the news last year for experimenting with ads between shows. The consumers who had paid for the subscription complained about the ads served. But SonyLIV's logic for this experiment had to do with the insight that Indian audiences loved free content, even if that meant watching advertisements between shows.

Even Netflix has struggled to do well from a commercial point of view in India.

From pricing struggles to issues around content that doesn’t cater to the large Indian and non-urban demographic and password sharing, Netflix has witnessed it all. Consequently, the platform has dropped its introductory subscription price range of ₹500 – ₹800 (2016) to its current offers, with the highest subscription plan being ₹649 per month.

As of April 2023, Netflix is considering the introduction of ad-supported plans specifically tailored for the Indian market in the near future. The company's revenue has experienced substantial growth thanks to its successful low-price strategy. Although it has not officially confirmed the launch of ad-supported plans in India, it alluded to this possibility in a letter addressed to shareholders. The company emphasised that its low-price strategy has been effective in attracting a larger customer base and highlighted the immense potential in India, with the goal of adding millions of subscribers annually. But to cater to an even wider user base, Netflix will have to resort to an ad-led strategy in the future.

Local streaming platforms like Zee and Voot also have ad-supported plans. And this isn’t an experience only OTT businesses are having; music streaming services such as Spotify are also struggling to convert their free subscribers.

Much like Netflix, Spotify has changed how the prices are reflected on its website. When it was launched in 2019, the prices were indicated as a lump-sum amount for a month, three months or six months. They now reflect monthly charges for different kinds of plans (one device, weekly subscription, multiple devices, family plans).

In an interview with Livemint, Paul Vogel, Spotify’s CFO, explained —

“India has become one of Spotify’s key growth markets three years after it entered the country, but ‘not one of its better markets from a profitability standpoint.’”

I wonder if all streaming businesses experience cognitive dissonance once they’ve entered the Indian market. Because, at least from what I gather while exploring this pattern, a business's initial anticipation of high earning revenues (large population) remains a distant dream, and they’re left fumbling with pricing strategies, trying to generate revenue from Indian customers.

A slew of these examples validates that India is certainly a tough nut to crack when one discusses a business's ability to command prices from customers.

Deloitte’s Technology, Media, and Telecommunications (TMT) report highlights,

“In India, free, ad-supported streaming generates more revenue than the subscription-based model and is expected to reach $2.4 billion in 2026.”

The Advertising Video-on-Demand (AVOD) market is 10 times the size of the Subscription Video-on-demand (SVOD) market, which makes streaming companies look at advertising as an avenue for revenue generation.

Even local language streaming services like Aha (Tamil-Telugu) earn about 15-20% of their revenues from AVOD.

In fact, JioSaavn, one of India’s oldest music streaming apps, accounts for only 1% of its user base as paid subscribers. And about 60% of their revenue is driven by online advertisements.

And for a platform like SonyLIV, which produces its own shows, along with reality shows like Shark Tank, Kaun Banega Crorepati (KBC), 40% of revenue is generated through advertising.

In fact, we “love” ads so much that the view-through rates for watching an ad are as high as 90%!

To be honest with you, I myself didn’t buy a Spotify Premium subscription for the longest time because their free version never really hindered how I listened to music. It would play ads for a few minutes, followed by an uninterrupted listening session of 30 minutes. It worked just fine for me. It is only when I started listening to more podcasts that I felt the need to buy a premium subscription.

And this fits our overall pattern of willingness to pay for a product.

Look at Zerodha’s Varsity, a free tool to learn about stocks and investing. You will see countless LinkedIn and Twitter posts praising Zerodha for the free access to such rich content. Even when you look at the concept of free deliveries with e-commerce shopping, as consumers, we can be wholly inconsiderate of how a service can be provided for free or at excessively discounted rates.

The thing to note here is that if the content is free, it usually means more awareness of the actual product being sold. For example, when you use Varsity for free, you go on to trust Zerodha with your stockbroking account. For other content-only platforms, a large distribution always ends up being a good honeypot for advertisers.

Indian consumers could be a case study in how markets tame businesses.

Every content platform arrives at the scene with a growth strategy but is finally left feeling disillusioned as only a few are willing to pay for something other than good old cable TV. And there is a lot of noise around behavioural economics, consumer psychology and how businesses can leverage these in commerce, but the Indian consumer might be an exception to a majority of these rules and studies that may be theoretically sound or widely replicated across multiple geographies.

Exploring this topic reminded me of this quote from We are like that only by Rama Bijapurkar:

“While India is undoubtedly complex, there still are some simple truths that managers have to accept. Indian consumers are very value-conscious. They may be poor, but they are not backward. Even in media-dark India, consumers are well-informed. They are not overwhelmed by Western brands. And they can make a difference in the global positions of individual firms.”

We take time to arrive at how much or how little we value a product or service, and we certainly don’t mind watching a few ads till we make up our minds. Often, we never end up paying. And it's a truth all content businesses sooner or later have to come to terms with.

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