 "Zhaowen Wu")
In late 2014, Karam Malhotra was working with McKinsey & Company in London. One of his clients, V-Nova, a UK-based software firm, had developed Perseus, a compression technology which decreased both the data and bandwidth needed to stream video by two-third of MPEG, the prevailing technology. So, if a full-length film normally takes one gigabytes of data, Perseus could compress it to 330 megabytes, making streaming that much faster and easier. "That," says Dominic Charles, then Malhotra's colleague in the media and entertainment practice, "was the light bulb moment".
By the first quarter of 2015, they were talking to V-Nova, which was focused on large satellite and telecom firms in the West, to license Perseus exclusively for the Indian and Sri Lankan market. In an equity for intellectual property deal, the privately-held V-Nova became the biggest shareholder in Fastfilmz Media India, set up in Bengaluru in September 2015.
In April this year came Fastfilmz, a video app based on Perseus that offered only Tamil films. In June, it raised a second round of capital and by July, it added Telugu films. Malhotra and Charles, designated co-chief executive officers and co-founders, will soon add Kannada and Malayalam films and then move to Bhojpuri, Bengali and Marathi, among other Indian languages. "Bollywood is very crowded. South India has half a billion people but there is nothing for them. It is an untapped market," says Malhotra.
| FACT BOX |
|
Inception: September 2015 Founders: Dominic Charles, co-CEO and co-founder, and Karam Malhotra, co-CEO and co-founder Area of business: Media & entertainment Market size: Rs 1,15,700 crore Funding: September 2015 - Seed round of $1-2 mn from prominent individual and institutional investors in the US, Europe and India, including TRK Group and Blue (Seed) Capital, Sequoia Capital and Sofina June 2016 - Bridge financing round of $500,000 from new and the existing angel investors |
The opportunity and the execution
The timing looks good. "While Tamil and Telugu were always big, in the past four to five years, a lot of regional markets have evolved and matured," says Amit Kumar, analyst, media, retail and consumer, Investec Capital Services. Punjabi and Marathi, for instance, are going through a strong creative and commercial renaissance. Regional cinema brings roughly half the Rs 13,800 crore the Indian film industry made in 2015. And, regional content drives 20-30 per cent of top line and profits for most broadcasters. There are 343 million internet users in India, of which an estimated 220 million have smartphones that allow them to watch video. The Rs 1,500-crore market (ad revenues only) for video apps is estimated to hit Rs 5,000-8,000 crore in the next five years.
Just after they quit McKinsey, "We spent two months in small towns and saw that people spend Rs 75-100 for two to three pirated movies," says Malhotra. It was clear the two big reasons for slow growth of video apps, in an overcrowded market, were that "the internet infrastructure is poor; therefore, the technology to stream video is behind. Because of this, piracy is rife," says Charles. In 30 focus group interviews across Tamil Nadu and Andhra Pradesh in July 2015, all sorts of insights came up. For example, when asked "what if you get 1,000 films on the service", the unanimous answer was "over 15 years, there weren't 1,000 Tamil films that were worth watching".
So, Fastfilmz devised a rating system based on critics' choice, recency, star cast, critical acclaim and other factors. This was used to prune a list of 10,000 films to 500. Of these, Fastfilmz acquired 400 on a fixed-fee basis. Through February and March this year, it tested the app by offering it to four fan clubs in Coimbatore and Vellore each. Around 25,000 people downloaded the app. "The idea was to get under the skin of audience and see how people devoted to movies watch these," says Charles.
In April, it launched with 150 films (now 250) that are free for two weeks. After that, the app will cost Rs 30 a month for one language and Rs 50 for both. Of the 150,000 downloads so far, 70 per cent have downloaded a movie. They spend an average of 60 minutes a week on the app. Charles reckons it is too early to talk of conversion ratios or break-even point.
"It is an uphill task being an independent OTT (over the top) player. Content and marketing costs are a huge load, unlike for, say, Hotstar (which comes from Star India)," says Kumar. Fastfilmz has kept its content costs low with its fixed fee model on a much smaller list than that of competitors. But, the process took a gruelling eight months in the notoriously insular Tamil film industry.
"It (Fastfilmz) is a good idea and they are executing it well. However, 70-80 per cent of the film rights in Tamil Nadu belong to Sun TV. Today, they may be sharing it at a reasonable cost. Tomorrow, when they see more opportunity or if they feel it could impact their linear model, the prices may be hiked or they may stop sharing. That could put pressure on Fastfilmz's business model," says Rohit Dokania, senior vice-president, research, IDFC. Charles disagrees. He reckons Sun has less than 50 per cent. Also, "Our belief is that OTT video needs a third-party aggregator to be successful. If Sun, Jaya, Raj, all of them launched an app, the user wouldn't be able to download them all," he says.
The second challenge is that FastFilmz's business model is predicated on the technology making efficient use of data. "But, if that is so, then the total usage and bill as well, as the total cost of ownership, goes up," says Dokania. Also, most users in India are on prepaid cards as Zhaowen Wu, an analyst with London-based Strategy Analytics, points out. Charles concedes that one. But, he reckons data prices will fall as fourth-generation (4G) technology rolls out across the country and Reliance Jio goes active. That will decrease the cost of ownership.
This bulb will take some time to light up.
| EXPERT TAKE |
 |
However, it faces three challenges. One, competition from ad-supported free services such as Eros Now and Hotstar. Two, piracy in the Indian market means Fastfilmz will have to provide a user experience exceeding that of online forums and local DVD stores. Three, it is attempting to pioneer a monthly subscription VoD service among customers who are mostly prepaid and not used to recurring bills for content consumption.
In the US, most VoD services have a mobile experience. Mobile-only OTT video services are led by existing mobile service operators. Verizon's G90 is supported by ads. T-Mobile's Binge On partners with existing VoD providers. Fastfilmz should invest heavily on exclusive content rights, at least on mobile devices. It should also partner with more mobile operators and device manufacturers to gain better exposure, to make the service sizable.
Zhaowen Wu, industry analyst, digital media strategies, digital consumer practice, Strategy Analytics, London
