Reliance Jio edging past incumbents with partnerships on exclusive content

The battle for subscribers market share between incumbent telecom operators Bharti Airtel, Idea Cellular and Vodafone, and Reliance Jio is increasingly shifting towards content driven offerings. Incumbent operators, who are struggling to stand their ground given pricing pressures and regulatory headwinds, are now faced with a content-driven marketplace where the scales are tilting towards Reliance Jio.

Analysts led by Srinivas Rao of Deutsche Bank believe that content is the new competitive lever for telecom companies. “Content bundling, besides price was one of the key differentiators during the launch of Jio’s 4G feature phone or Jiophone. Unlike Airtel, Jio has ownership of its movie library and investment in TV and digital content,” they add. Among key assets, the Reliance Industries, Reliance Jio’s parent owns the Network 18—the media and entertainment group of companies.

Apart from helping telecom companies retain/grow their market share in mobile services, content is a big opportunity in itself. Analysts estimate the potential at nearly Rs 2 trillion, and given the state of financials, it can help players who are able to corner a larger share of this opportunity to boost their revenues and profits.

Reliance Jio, which launched its services in September 2016 (commercial launch in FY18), has already notched up a 14 per cent subscriber market share. Recently, its parent Reliance Industries (RIL) picked up a 5 per cent stake in Eros International and also entered into a partnership with Eros International Media to co-produce and consolidate content. The company has an investment in Viacom 18 and a 25 per cent stake in Balaji Telefilms, which will allow its users to access original content through its apps such as Jio Cinema, Jio TV and Jio Music. 

Airtel, too, is beefing up its content offering and announced a partnership with Hotstar and Amazon to bundle the latter’s Prime membership with its post-paid plans. The company is already offering free access to Airtel TV, which includes the content of Hooq and Sony LIV to all its subscribers up to June 2018. Airtel has an investment in music streaming service called Wynk and Juggernaut Books. Similarly, Vodafone is offering content on its platform Vodafone Play app and also has a tie-up with Netflix for its premium customers. Idea Cellular, which arrived late into this content slugfest, has tie-ups with Hungama Digital and Eros and is using its apps Idea Music and Idea Movies to distribute content.

While its competitors have entered into a content-sharing relationship with various companies, Reliance Jio is going a step further and creating its own exclusive content through its partnerships and ownership of content creators. And this can provide it with an edge in the business, where differentiating one’s services/offerings is becoming crucial. 

Vivekanand Subbaraman and Deep Shah of Ambit Capital, say, “Unlike the current approach of content partnerships, we believe that a zero-rated access strategy (exclusive content on certain apps without deducting data pack limits) could help Jio meaningfully differentiate itself from incumbents and attract high-value postpaid subscribers.” 

There are 51 million high-value post-paid subscribers, which account for five per cent of user base but 20 per cent of the sector revenues. The other issue for telcos is monetisation of content, which currently is free. Further, given that the regulator frowns on exclusive content deals and those that limit customer choice, telcos will have to look at ways such as the subscription model to pay for costs. However, analysts say that with both the incumbents and Reliance Jio focussed on subscriber market share and content bundling being a key differentiator, it is unlikely that they will charge for content anytime soon. 

While the jury is out on this as these are early days, analysts at UBS believe that digital content monetisation for Reliance Jio could start in FY19 with digital subscribers and revenues expected to double over the next five years. They estimate Jio’s digital content revenue at Rs 23 billion in FY19, rising to Rs  70 billion in FY23. In such a scenario, incumbents too should stand to gain. Notably, the willingness of customers to pay for content has also been increasing and all this spells good news for the telecom industry.

For now, given the intense pressure in mobile services, most analysts are cautious on telecom stocks.