How Digital Media DESTROYED Bollywood? | Business Model of Netflix / OTT | Dhruv Rathee
Hello, friends! For the last 2 years, the Bollywood film industry has been suffering a lot. There are several reasons for this. But the biggest reason, the one considered to be the main reason, are the OTT Platforms. It's said that instead of going to cinemas halls to watch a movie, people prefer watching films at home on these OTT Platforms.
This causes huge losses to the film industry. Although, interestingly, initially, when the OTT Platforms were introduced, it benefited film producers. These OTT Platforms had spent millions to buy films for their platforms. In several cases, the payment amount to billions of rupees. The OTT Platforms paid more than the budget of the film to buy the rights to it. But now, they have started rejecting films.
Film producers are told to release the films in theatres first, after which, the OTT Platforms would decide how much they'd be willing to pay for it. Film producers who made their films expecting it would get a direct OTT release, are now facing huge losses. How did this come to be? What is the Business Model of the OTT Platforms? Come, let's try to understand this, in this video. "...is launching an OTT app, SRK+." "I'll be hosting Big Boss OTT on Voot." "Why did Akshay Kumar's film start flopping?" "New movies, new shows every week.
"Just wait a few weeks, I'm coming to you all. That is the error, according to me, in film industry's role." "Internet didn't exist then, but it does now. Internet has boosted the availability, and rightly so."
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You would've heard people talking about platforms like Netflix, Prime Video, and Hotstar, referring to them as OTT. OTT stands for Over The Top. But have you ever wondered, what does this actually mean? Over The Top in which sense? To understand this, we need to understand the history of television. 15th August 1982 a new revolution swept through the television industry in our nation. It was the day when for the first time, the Doordarshan (DD) channel, was broadcasted in colour. Television was introduced in India during the late 1950s, but this point is considered to be the turning point in the Indian television industry.
Because DD was being broadcasted in colour via satellites. INSAT 1A I talked about this satellite in the video on ISRO too. Fast forwarding a few decades, the next turning point was in 2000, when the Indian government allowed DTH satellite television in the government. Direct to Home Satellite Television. With this, in 2003, DishTV was the first DTH facility.
Before this, people watched Cable TV. Cables were laid out, you had to get them at your home too, for your TV to work. But satellite TV meant that you could put up an antenna at home, to be able to receive satellite signals. You'd remember the dishes on your balconies, or rooftops.
And to convert that signal, a set-top box had to be placed near your TV. Even today, many people use this. With this, people had a larger choice of channels they could watch at home.
A large variety of channels were being offered. And fast-forwarding some more years, Web 2.0 was introduced. Exponential growth was seen in social media websites. Along with them, came the OTT Platforms.
2009 was the year when Netflix started getting into partnerships with Smart TVs and gaming consoles. Netflix wasn't a new company. The company Netflix is quite old. In fact, Netflix predates Google. It was founded in 1997, by Reid Hastings and Marc Randolph.
Initially, it was a platform on which people could rent movies via the internet. "In today's busy world, going to the video store is a hassle. With Netflix, you just make a list of movies that you want to see, and you'll get your first DVDs, in about 1 business day." In 1998, netflix.com was a website on this website, by making a monthly payment, you could get unlimited DVD rentals.
Simply click on the DVDs of the film you want to watch and then DVDs would be delivered to your home. An interesting algorithm that is still used by Netflix began back in those days. In 2000, Netflix started using the Recommendation System. Their system noted down the types of films people preferred based on certain demographics, and based on those film choices, it started recommending more films.
By 'recommending films', I mean for renting its DVD. Back then, Netflix's competitor was Blockbuster. They had physical stores, where they sold the CDs and DVDs, people could go and buy them or even rent them.
Netflix had the advantage of running the business online. People could order online and receive it right at their doorstep. On top of it, Netflix was a monthly subscription service.
By paying them monthly, one could rent unlimited DVDs, By the time Blockbuster realised how great this business model was, they were late. In 2004, Blockbuster began their online DVD rental similar to Netflix, But by 2006, Netflix had 6.3 million subscribers and Blockbuster's online service was at 2 million. Netflix was always 2 steps ahead in their innovation.
By this point in time, Netflix had understood that the business of selling or renting CDs and DVDs wasn't going to last. The laptops and computers were playing the CDs and DVDs then, but the speed at which they were improving, CDs and DVDs will not be able to keep up with them. Internet was improving unprecedently.
They knew that in the future, people will prefer streaming the film online instead of renting DVDs. This is why in 2007, Netflix wanted to create a service that would allow one to go on an online website and stream films. 2 years later, in 2009, they made a deal with TV consoles and in 2010, they started dealing with big film production companies. Such as Sony, Paramount, and Disney. Netflix paid these production houses to buy their films so that they could stream the films on their platform.
July 2010, was coincidently the same time, when Netflix's competitor Blockbuster filed for bankruptcy. "Video rental chain Blockbuster has filed for Chapter 11 Bankruptcy Protection." Not changing fast enough with time, caused upto $1 Billion in losses for Blockbuster. In 2010, Netflix was valued at $24 million. Today, Netflix's valuation is believed to be more than $200 billion. To imagine how big this amount is, you can compare it with Twitter, Twitter was bought at $44 Billion, so you can assume its valuation to be around $44 billion.
Netflix is almost 5 times as valuable as Twitter. Around 2011, Netflix realised that they needed to stop buying films from the big production houses, instead of relying on them, they could save money by making their own films. This is why, friends, in 2013, Netflix launched its original TV series. House of Cards and Orange is the New Black were among their first TV shows. They proved to be so successful leading Netflix to realise that making original shows was a huge advantage.
They could satisfy all kinds of audiences on their own by making content in all genres, without waiting for an external film. Friends, today you can find more than 3,000 original content on Netflix, amounting to more than half of their content. 50.017% of Netflix's content is original.
And the rest are bought from production houses. If you compare the present with the era of cable TVs and DTH, you will see a vast difference. Back then, we had to depend on middlemen. Your local cable TV distributor or these set-top box companies. Today, you can watch films directly using the internet right on their website.
Since these OTT Platforms reach the viewers directly, they are known as Over The Top. They go over the top of the traditional middlemen. In India, the first OTT Platform to be launched was Reliance Entertainment's Big Flix in 2008.
"Does your TV give you over 500 of the latest Blockbusters?" But it's model was a bit different. This was a Video on Demand service. When you wanted to watch a film, you had to select it, and then pay for it. Also known as the Pay Per View business model. The true growth of OTT Platforms in India happened after 2013. When Zee launched their Ditto TV And Sony Liv was launched in 2013.
The shows you could watch on TV channels such as Sony, Star, Viacom18, etc. were being shown on Ditto TV. Hotstar entered the market in 2015, today, it has been renamed Disney+ Hotstar. The next year, in January 2016, Netflix entered the Indian market. Coincidently, in 2016 another development changed this industry forever.
No, not the demonetization. I'm talking about Reliance Jio. "We will be able to provide an abundance of high quality, high speed data, and transform India from a high-priced data market to one with the lowest data rates anywhere in the world." With Jio's entrance, the data rates took a nosedive, gaining a large audience for these OTT Platforms. More people could access the internet, and could stream relatively cheaper on these streaming platforms.
This is why there are more than 40 OTT Platforms in India. Obviously, they have been quite successful. So what is the business model of these OTT platforms? Let's understand. Basically, OTT Platforms have 2 ways of acquiring content.
First, by buying the broadcasting rights to a film. If a production house had produced a film, they could pay to buy its streaming rights. To include it in their content library. Second, is Self Production. Producing film films and web series themselves by investing their own funds. This is how films and TV shows get to you on the platform.
But how do they make money using these? OTT Platforms have basically 4 ways of monetization. They can be called the four models of monetization. First, AVOD.
In this model, you can watch these films and TV shows for free, but you will have to watch ads on the platform. You will get ads in the middle of the films. If there's a large audience consuming the content on a platform, companies can be charged an amount to run these ads.
This is an entry-level model. This can be used by OTT Platforms to reach a large audience as many customers as they can, and can lure them to their platform by offering free content and services. The biggest example of this model is YouTube. On which you are watching this video. Apart from this, MX Player used this AVOD model until recently until they added their subscription option, MX Gold.
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Go check it out. And let's get back to the topic. The second model is SVOD. If people want to watch something on the platform, they'd have to pay a subscription fee. Normally, this is a monthly fee, and platforms that are well-established, are the ones to use this. Such as Netflix, Prime Video, and Disney+ Hotstar.
Because platforms that are not popular, why would people pay for something they aren't familiar with? AVOD is more popular than SVOD. 50% of the global OTT revenue is from AVOD model. And SVOD model rakes in about 40%.
But if you take the per-user data, SVOD model makes the most money. The third model is TVOD. Also known as Pay Per View. If you want to watch something, you would have to pay a fixed fee for it. iTunes, Reliance's Big Flix that I talked about and some films on Amazon Prime, use this model.
Last year, Salman Khan's film Radhe was released on Zee5 using this model. This is similar to how you have to pay for a show in the cinema halls. Here, if you want to watch a specific film at home, you have to pay for that only.
And the fourth model is the Hybrid Model. Wherein these three models are used in various permutations and combinations. The most common is combining the AVOD and SVOD models so that there's free content but you can pay for a subscription to remove the ads. YouTube is a good example of this. You can watch content for free on YouTube with ads, but you can remove the ads by paying for a subscription for YouTube Premium.
Disney+ Hotstar and MX Player use this model too. Netflix was relying on SVOD till now, but there have been recent discussions of Netflix coming out with a model with ads. The second combination is of SVOD and TVOD wherein the subscribers have to pay a monthly fee, but for the latest major film, they would have to pay an extra fee. Zee5 and Amazon Prime Video do this.
But broadly speaking, there are only two ways of generating income for these platforms. One: from advertisers. Second: from the audience. When the audience pays the subscription fee. But to get these subscriptions, they need to have a good content library first. This is why many platforms want to create their original films and TV shows.
The business model of these OTT Platforms is quite unpredictable. Which film rights should they buy? Which films should they invest in? And in return, how many people would subscribe to their platform? It is really difficult to predict this direct relation. No one knows which films will do well, and which won't.
Or which films would draw in the most subscribers to the platform. These platforms have to take a lot of risks. They have to invest their funds. When a film by a major actor is about to release, they pay in advance to buy the rights to it, since there's a high chance of the film doing well and drawing in more subscribers.
This is why, for the films by some actors these OTT Platforms are ready to pay the big bucks. Such as Kamal Hasan's 2022 film Vikram. Even before its release, this film had made ₹2.5 billion by selling the OTT and satellite rights. Or Shahrukh Khan's upcoming film Jawan. It is made with a budget of ₹2 billion.
But its being said that they already have a ₹1.2 billion deal with Netflix. In its nascent stage, OTT platforms had to pay the premium prices to expand their content library and to have quality content. So that they become attractive to the subscribers.
But eventually, they realised that the large amount of money they were spending in buying the rights to the films, didn't result in significant returns. On top of it, when the cinema halls reopened after the pandemic, and films got back to the cinema halls, OTT Platforms saw how even films with big names turned out to be a flop. Like 3 or 4 of Akshay Kumar's recent films flopped terribly. Even though he is a big actor, with a big name.
OTT Platforms realised that perhaps it's not a good idea to pay such high prices for films. That's why, today, most of the OTT Platforms wait for the films to be released in cinema halls first, and they would buy the rights to it later, after judging the film's success in the cinema halls. By doing this, OTT Platforms will not have to spend on marketing. As compared to having it release on OTT, where these platforms, like Netflix, are responsible for spending on marketing.
Normally, marketing a film costs ₹30 - ₹40 million easily. This is why the Indian film industry is going through an upheaval. According to a Statista report, In the FY 2019, the average price of a PVR movie ticket in India was ₹207. The other expenses aren't included here, the cost of the popcorn or the travelling costs, excluding all of them, just the cost of watching the film was ₹207.
And the OTT Platforms give you access to the content library for a month, at about half the cost. Most of the OTT Platforms, that is. Initially, they spent a lot of money to build a good content library, to attract the audience into joining these platforms. And now they do not have to spend as much to buy new films. This is very problematic for the film industry.
Especially for the people who relied on earning from cinema halls. It is true that there are some who prefer going to cinema halls to watch a film. Especially for a big-budget film that has a lot of VFX.
But the smaller films that people would watch casually at the cinema halls, draw in very little audience to the cinema halls. For some OTT Platforms, this business is even easier. Such as Amazon Prime Video. Because Amazon has claimed that they do not intend to make profits from Prime Video.
That it is simply a bonus service being provided in Amazon's ecosystem. "Because it's the Prime Membership program, from a business point of view, we also like the business results, because it drives people to join Prime, and then once they have joined Prime, they enjoy fast free shipping. So they also buy a lot of products from us. So it's a vehicle to make fantastic content and from a business point of view, it works for us as well." The main point is to have people buy the Prime Subscription so that the free deliveries of the products you purchase on Amazon would drive up the sales and be a source of revenue for them.
And Prime Video is simply an extra benefit to you for free, you can keep enjoying them, while they aren't looking to make profits from it. The next few years will be splendid for the OTT Platforms. Deloitte published a report in February 2022, All About Screens, They estimated that the OTT market would see a 20% growth each year. And in the next decade, the market would be valued at ₹1,200 Billion. Statista estimates that there are 397 million OTT users in India.
And Disney+ Hotstar is the most subscribed and most watched OTT Platform. If we see the expenses of the OTT Platforms, it is estimated that last year, they invested $665 million for buying films and creating original content. Disney+ Hotstar spent the most among them at $380 million.
According to the same Deloitte report, each paying customer for OTT, has paid for about 2.4 subscriptions on average. According to Statista, the average revenue per OTT user earned, was around ₹520 in 2022. This average is much higher for the SVOD model, Each user accounts for the revenue of ₹1,295 on average from the subscriptions. It is ₹228 for the AVOD model, And ₹196 for the TVOD model. Even though the revenue generated per user from the AVOD model is lower according to Deloitte's report, AVOD model generates a higher revenue in total.
Unfortunately, we do not have more detailed data. The data that I shared with you are for all OTT Platforms in general. These platforms do not provide a detailed breakdown of these numbers.
About which films got the most views. Or which TV show brought them the most subscribers. We can simply make an estimate from afar. Such as Netflix claimed that Squid Game was the most popular TV show for them worldwide. So you can assume that Netflix got the highest number of subscribers from Squid Game.
I hope this was an informative video. If you liked this, you can understand the Business Model of Bollywood about how the film industry makes money independently. And how their deals with the cinema halls work by making money for all. Click here to watch it. Let's meet in the next video.
Thank you very much!