Traditional Cable Companies Attract Subscribers with the Launch of OTT Services

Traditional cable companies are joining the bandwagon by launching their own OTT (over the top) content to cash in on the buzz in the digital space and tap a new revenue stream, says India Ratings and Research (Ind-Ra). The market which these cable companies are trying to tap is growing at a fast pace, as per the Telecom Regulatory Authority of India total wireless telecom subscribers stood at 1.06bn and broadband subscribers at 159m as of end-May 2016. As per the Cellular Operators Association of India, the number of 3G users in India are expected to more than double (to 330m) and 4G to grow by over 10 times (to 42m) from 2015 base till 2017.

In fact the Frost and Sullivan (Feb 2016) market insight on the OTT video market in India finds that there are about 66m unique connected video viewers in India every month, and about 1.3m OTT paid video subscribers.

 

In broadcasting, OTT is the delivery of audio, video, and other media over the internet, without the need of a cable subscription from a Multiple-System Operator (MSO) who is usually in the control of distribution of the content. In light of competition from independent OTT content producers/aggregators (namely Netflix, Eros Now, Spuul) and broadcasters with OTT services (namely Ditto TV, Hot Star, Voot ) and the industry wide shift of consumers towards consuming digital content, traditional cable companies are setting up their own OTT services.

Certain MSOs namely Asianet Satellite Communications Limited (Asianet: 'IND A-'/Stable, first MSO to launch) has launched an OTT service called Asianet Mobile TV+ for streaming Malayalam among other regional TV channels. This enables the company to expand its geographical reach, enable non-linear/on-demand consumption and offer the opportunity to cross-sell/bundle its broadband services. Asianet had a broadband subscriber base of 167,000 at end-FY16. Hathway Cable & Datacom Ltd ('IND A-'/Negative) is expected to launch its OTT soon. The agency expects other MSO's to also follow suit, in order to keep up with this shift in consumption pattern.

Among the large players, broadband subscribers grew in FY16 for Hathway Cable & Datacom to 627,200 from 455,800 in FY15, DEN Networks Limited to 95,000 from 23,000 and SITI Cable Network Limited to 132,000 from 60,000 showing the growth in broadband penetration. Players may try to bundle OTT services with their broadband services to create a bouquet offering.

The entry strategy for MSOs launching OTT is to grab subscribers initially and monetise later. Some players in the media value chain are offering OTT free or at prices as low as INR20/month. Even for the yet to be launched OTT services, Ind-Ra expects these services to be free initially to develop a user base and then move to a subscription based service with gradual price increases. Eventually players will move to tap advertisement revenues using consumer demographics/analytics. Currently, the eco-system is still evolving with various intermediaries in the value chain offering digital services. The next leap forward for the industry will be post the introduction of better 4G data services by telecommunication service providers which will enable wire-less and on the go streaming.

The initial investment by MSO players who have already launched OTT services isn't substantial and is not expected to be sizable for the MSO's in FY17, nor is the revenue stream significant. This could however be a hedging opportunity for cable operators with broadband presence, since now content owners can reach the consumer directly. The rush to encash on the digital frenzy is pushing MSOs to experiment, but the consumer is likely to choose the OTT provider based on- the availability of a variety of content, end-user experience and price point.

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