Daybreak - Why it's time for Disney+Hotstar to level up in India

Episode Date: February 24, 2023

Hotstar has remained the undisputed OTT leader in India boasting of half of India's 90 million paid OTT subscribers. A part of this success has come via the IPL streaming rights and from bundling with telecom and DTH service providers like Jio and Airtel. But last year, Jio's Viacom 18 won the digital streaming rights of IPL, the largest cricket tournament in the world. Not just that Reliance's Jio also dropped Disney+Hotstar from most of its streaming bundles.Why did Reliance choose to end this partnership and what does it mean for Disney+Hotstar?Tune in to find out. 

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the same. secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they managed to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into.

to the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get an alert, as soon as we release our first episode, please follow Intermission on Spotify and Apple Podcast. or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode.

I'm sure you've read or at least heard about the art of war by the Chinese philosopher Sun Tzu. It is one of the most widely read books on this planet. In the book, among the numerous teachings by the philosopher, one is, let your plans be as dark and impenetrable as the night. and when you move, fall like a thunderbolt. This is more or less what Reliance has done to Disney Hot Star in India. For years, the two firms had been working together. Disney Hot Star championed the video streaming ecosystem in India,

and Reliance Geo powered it with its internet infrastructure. It was a solid partnership. Disney Hot Star is without doubt the leader of the Indian OTT space. It boasts of roughly half of India's 90 million. million paid OTT subscribers. And the credit for this is not Disney Hot Stars alone, especially because we know how price-sensitive the Indian audiences. And this is why distribution is key to cracking the Indian market for any OTT platform.

So Disney Hot Star decided to be a part of the streaming bundles that are offered by telecom and DTIH service providers like GY Nettel. To the price-sensitive audience here, it is a much better proposition than paying for individual OTT subscriptions. According to multiple former and current Disney Hot Star executives that the Ken reporter Somi Jee Tzaha spoke to, around 15 to 30% of Disney Hot Star subscribers were coming from the bundles offered by Reliance Geo. Plus Disney Hot Star had the crown jewel,

the digital streaming rights for the Indian Premier League or IPL, the most popular cricketing tournament in the world. The IPL rights were attracting millions of viewers onto the platform and driving advertising revenues into the hundreds of crores besides subscriptions. I mean, could it get any better than this for Disney Hot Star? But last year, the OTT giant was dealt with quite the blow. And guess who it came from? Mokashembani's Reliance.

Wycom 18, a subsidiary of reliance industries and Paramount Global, won the five-year contract for digital streaming the IPL. And that is not all. In November last year, Reliance Geo suddenly pulled the plug on most of its streaming bundles with Disney Hot Star. The fairy tale seems to have come to a very non-ferytale ending. And then earlier this week, almost like rubbing salt on the wounds of Disney Hot Star,

Reliance's Wycom 18 announced that it will stream the IPL games for free. Yes, you heard that right. Reliance will stream IPL for free. But why is Reliance doing all of this? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time.

Today is Friday, the 24th of February. Let me start by telling you. little bit about how bundling worked for Disney Hot Star. It was in early October last year when a range of Geo's bundles that included Disney Hot Star suddenly disappeared. Geo had very quietly removed at least nine bundles priced between 300 to 1200 rupees. It was only the too expensive ones that stayed. Just before that, Disney Hot Star had also lost the IPL rights to Viacomati. And right after that, Disney cut its user-based forecast for Disney Hot Star. The platform, which is available in India and some Southeast Asian countries,

now expects to have 80 million subscribers by March 2024. Previously, it had expected 100 million subscribers. Now, like I told you earlier, bundles have been an important part of Hotstar's subscription success in India. Hot Star executives said that bundles with various testes, Telecom providers such as Geo and Airtel and TV set-top box service providers such as Startup Play contributed to roughly half of all of Hot Stars subscription until last year. They help OTT providers with an assured source of income.

They also improve with distribution while increasing the plan's attractiveness for the telecom firm's customers. The telecom firm, meanwhile, pockets the difference. So bundling help push up Hot Stars' total subscriber figures. But that does not mean that it worked out for it financially. Coming up next, I tell you more about Hot Star's woes. The Disney Hot Star bundles that were taken off by Geo were mainly low-value subscribers to Hot Star.

According to executives at both Geo and Hot Star, they were the ones who bought the cheapest one-month or three-month plans. The access to content in these plans was also restricted. For example, these bundles did not offer access to many market, key products such as the Marvel franchisee of movies in English. It is also worth remembering at this point that Geo continues to provide access to Hot Star via its DTH broadband called GeoFiber, even though it forms a small part of the telco's overall business. A Hot Star executive told again that many subscribers bought Geo

bundles only to watch the IPL. Now this was a problem for Hot Star. One, because it did not bring in enough money, and second, that these subscribers would stop paying once IPL was over. Also, IPL rights cost Disney Hot Star a bomb. And GEO's decision to remove Hot Star from its bundles is going to cost it in terms of subscribers, which is the number one marker for any OTT platform's success. Executives at Hot Star that the Ken spoke with said that during the months that the IPL was on, Hotstar's overall subscriptions were. would shoot up. This resulted in the share of subscriptions coming from geo bundles becoming smaller.

The share would drop to 15% of total subscriptions. But they also said that spread throughout a year, geo bundles could add as much as 30% to Hotstar's total subscriptions. As the pandemic hit, Hot Star India's advertising income flattened and then fell 15% in the year that ended in March 2021. Now, subscription revenues grew by 34% that year, but it still saw its net losses widened by 66% to 600 crore rupees. This was mainly driven by a rise in costs. A Disney hot star executive told again, and I'm quoting, profitability has become an increasingly recurring word over the last year in the office.

End quote. And that, for one, probably meant giving up on IPL's digital. digital rights. In fact, as it turns out, the firm had already started preparing for the loss of its crown jewel months before the auction. Oh, and by the way, Reliance is said to have paid three times of what Disney Hot Star did for IPL's digital streaming rights. But even as Disney Hot Star saves on expenditure, the loss of the IPL digital rights will hit the firm's advertising revenues. In fact, if you compare the revenue hit for Disney Hot Star from losing the low-value bundled subscribers from Geo will actually be much milder. Coming up next, why this move will work out

for Geo. Many industry executives told the Ken that for Viacom 18, the entry into sports rights essentially means that its sister company, Geo, does not have much incentive to continue bundling with Hot Star. A Wycom 18 executive, in fact, even told us that instead, new geo bundles with subscriptions to Ycom 18's Woot could be rolled out in the future. Most daily internet plans on geo already come with access to Geo Cinema, which merged with YECOM 18 in September last year. Viacom 18 is actually betting big on content. And that is what seems to be driving all of these decisions. Because just think about it. Other telecom service providers. like Airtel and Vodafone Idea have kept their Hot Star bundles mostly intact even in the absence of IPL.

And this is because they don't have their own content plays. The end of bundles is unlikely to hurt Reliance Geo. Because these plans brought in just a small part of its total telecom revenues. Yes, it may miss out on some surges like from the ICC cricket World Cup games that are still streamed on Disney Hot Star, but it is still not such a big deal for Reliance. So does this mean that Reliance is going to be the undisputed leader? Not so soon. Stay tuned to find out.

Reliance might have won the IPL rights, but that does not mean that it is going to go unchallenged. Even with a fall in the number of subscribers and along with it revenue, Disney Hot Star is still the most popular OTD platform in the country. Let's not forget that besides having the TV rights for the IPL, it also holds the rights to ICC's matches and other popular properties such as the English Premier League and Formula One. Beating it is not easy. Even if Wycom 18 wins the BCCI rights, executives across the industry believe that it will take at least a few years for Wycom 18 to compete with Hotstar's subscriber base.

A senior executive at one of Wycom 18 and Hotstar streaming rivals told again, and I'm quoting, it is entering a long-term game against a rival that may have slowed down but is nowhere near out. Hot Star also has decades worth of experience and relationships in the market. But this match Hot Star has lost and that only means that it should have its next goals set already. Push for subscriber growth and improve the quality of revenue. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news news news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters,

subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.