Last week, video streaming platform Hotstar raised $153MM, post which it launched a 365 INR VIP subscription plan.
Parent as a Powerhouse
Star India has been a dominant force in the Indian entertainment space for nearly 3 decades.
Starting with Star Plus in India, in 1990, the company has constantly expanded its bouquet of channels.
After entertainment, and an acquisition by Rupert Murdoch’s Fox, Star has rapidly added channels to become the largest broadcasting network in India. With 60 channels, across sports, music, movies and TV Shows.
Star is a powerhouse in content, producing 30K hours of content each year. Put that in comparison to global giant Netflix – which produced 1.5K hours in 2018.
Star had access to almost every television screen in the country, yet there was a new screen that was increasing in adoption.
Those 200 MM screens, of course, were smartphones.
A Star is Born
To tap this large growing market of screens, that was likely to take away attention from TVs, Star had to innovate.
It is usually unlikely that large conglomerates, especially those that are dominant, innovate. Stories like DVD rental giant Blockbuster, which was eliminated because it didn’t innovate, are easy to find. But Star took cognizance of a potentially new way of consuming entertainment and disrupted itself before someone else could.
In this large giant Star, a startup called Hotstar was born.
Envisaged as a video streaming platform in early 2015, Hotstar aimed to bring video to your phone. While it may seem like Hotstar would have it easy, video streaming as a concept in India was fairly nascent, and few people believed that it would work.
Playing the World Cup
The timing of Hotstar’s release was opportune and meant to coincide with the cricket World Cup.
India is a cricket loving, and cricket hungry nation. To have the ability to watch matches from the comfort of your phone or laptop, instead of standing on the neighbourhood TV, was an excellent prospect.
It would be a daunting prospect to have your product “beta launch” during the most watched and most followed event in the country.
Would the product break? Would the servers crash? There could be millions of users. Streaming it would be a high risk, high return game, just like the World Cup.
Hotstar would turn out to host 87MM users. Within the first 5 days of its launch, Hotstar grew to 1MM downloads, 10MM in a month and 25MM in 4 months.
Its success surprised Star itself.
Netflix gives a Chill
The incredible success of the World Cup was amplified by the follow up with the IPL. While the World Cup saw 300MM views, the IPL garnered 200MM views. Hotstar continued to grow unabated.
The Hotstar service of high quality and a game-changing experience for Indian consumers. A significant contributor to its viral growth was also the fact that it was free.
The real question as a streaming business would be – would people pay?
Streaming had already seen success in the US, with Netflix disrupting itself to become a streaming service. While Hotstar made money through advertisements, Netflix made money solely through its subscriptions.
It would be Netflix that would make the first subscription move in India.
Entering in early 2016, Netflix would bring its popular global content to India. Throwing its hat in the ring, the $280MM OTT market now had global competition.
Priced at a premium 500INR/month ($8), Netflix would go after premium Indian users. This, though, would also be a market that Hotstar would soon target.
The Sacred Games would soon begin.
Making People Pay
The success, and the long term viability of Hotstar, would be dependent not on “lumpy” ad revenue, but a constant stream of subscriptions. In anticipation of setting up a subscription service, Hotstar partnered with Game of Thrones producer HBO.
The move would be excellent for business.
Starting in early 2016, Hotstar would begin charging 199 Rs ($3) for its subscription service. It would see early 2016 revenue at INR 30 Cr ($4MM).
By 2017, the subscription revenue would grow to 130Cr ($20MM), which works out to 500K monthly subscribers. This would account for 40% of the company’s revenue, indicating how important subscription would be for the business.
“Jio Ji Bharke”
Hotstar had made a bet that consumers would watch content from their devices. Devices could be computer screens or smartphones.
The real infrastructure, though, that was lacking was pipes of data to consumers. While telecom providers did provide data access, it would usually be limited (1 GB), and part of a fairly costly plan.
Jio would surge to 100MM subscribers. Where would these subscribers spend their time?
Watching 3.4 Bn hours of video, every month, of course.
Losing Sacred Games
While Hotstar had the first mover advantage, and saw positive externalities from Reliance Jio, there were already many players in the fray. Amazon entered with Prime, and Netflix had already staked claim to the Indian market.
Soon, Netflix would play Sacred Games to cement its position in India’s video wars, with the show being a customer acquisition strategy.
Sacred Games would be a marketing (not content) cost to understand Netflix’s business strategy. A film like Sanju cost ~$15M, similar to a season of Narcos. Netflix’s production for Sacred Games would likely be a third.
For an annual subscription of $87, Netflix would need to acquire 55,000 paid users to justify Sacred Games. For Netflix’s ~500K paid users, this is plausible growth for their 100M user target in India.
Many commentators wrote off Netflix, using the poor metric of “subscribers”. These “subscribers” are actually monthly active users, including free users.
Looking at paid subscribers, only Hostar, Prime and Netflix have those. According to estimates, Hotstar would have ~2M, Prime is 600K and Netflix is ~500K.
Prime Video is rightly a % of the overall Prime subscriber base. Hotstar and Prime cost $14, and Netflix costs $87 annually. Multiplying, Hotstar would be $30M, Amazon Prime would be $8M and Netflix would be $45M.
Written off as the vanquished Ashwatthama, Netflix would be the fierce Rudra in India video.
Winning at Being Sporty
Netflix may have won the “eternal” content contest (i.e. TV Shows), but Hotstar would always be in pole position for “ephemeral” content (i.e. live sports).
Hotstar’s parent would win the right to broadcast IPL for $3Bn. For 60 matches over 5 years, and one match being 180 minutes, that is 54K minutes of content. That works out to $3Bn/54K or $55K for every minute of IPL content. Comparing this to Netflix’s most expensive show The Crown, which costs $13MM per episode of 60 minutes. That would work out to $200K/minute of content.
While this math quite powerfully shows the differential pricing of content that has immediate value (sports) and long term value (TV show), it also shows how different Netflix and Hotstar are.
Netflix/Amazon Prime have core strengths in content that is time agnostic (“eternal”), such as TV shows that can be watched anytime with the same value (unless someone spoils it for you). Hotsar has its core strength in content that is time-sensitive, such as sports that are watched at the time of broadcast, which has little value once the game is over.
Netflix and Hotstar do compete for attention, but their attention is of different kinds. An analogy would be the competition between Dominos and McDonalds. While they are both QSRs, they are as different as Pizzas and Burgers. There’s always a time for each.
With 100MM+ downloads, Hotstar is a force to reckon with. It is venturing into original content through Hotstar Specials. The potential to upsell and cross-sell content with its 365 INR package is immense.
Hotstar has built an industrial content complex, and it will be a major force in India video.