Why Ronnie Screwvala exited Arre and what it means for the OTT segment

Ronnie Screwvala, one of India's best-known media entrepreneurs, has exited digital content platform Arré barely a year after announcing the venture as he feels the segment is in its infancy in India and over-the-top platforms have yet to figure out a viable business model.

Screwvala, who set up media house UTV in 1990 and sold it to The Walt Disney Co. four years ago, had last year teamed up with B Saikumar, former group CEO of Network 18, to launch a digital content firm and announced an investment of Rs 150 crore. But he has now sold his entire stake in the venture, after paring his holding in February this year. In his place, asset management firm Enam Group has now acquired a significant minority stake in Arre.

The development comes barely six months after the digital media firm that Screwvala co-founded announced the launch of an OTT platform Arré (for more on the game plan for Arré, click here).

OTT platforms are touted as the next preferred destination for consumption of video content. Arré is one of a dozen such platforms; Hotstar, Spuul, Netflix, Hooq, Eros Now, Sony LIV, Hungama Play and Viacom18's VOOT are the other such operational platforms while Amazon Prime and Balaji Telefilms' ALT are likely to join the race soon. And then there is Google's YouTube, the market leader in the online video viewership and online video advertising revenues.

In a market that is exploding, Screwvala's exit has raised a few eyebrows. But he is clear about the reasons why he exited the fast-growing segment.

"Personally, I have failed and succeeded in equal ways—in being early and pioneering in the past in the media and entertainment industry. I think it's not always best to come too early to the party," Screwvala said in an email response to VCCircle's queries.

Screwvala said there is no viable long-term business model for digital media in India yet. He said that, without a model where viewers pay for what they consume and which is not mostly dependent on advertising, companies will be in an investment mode for too long without achieving a critical mass. "Getting critical mass by being dependent on western platforms with revenue models that favour them will continue to be a challenge," he said.

Business models Broadly, OTT players in India follow there models. First, where the content is free to access and the platform owner earns from advertising. Second, where subscription drives the business with zero advertising. And third, called Fremium, where a user pays for premium content while some content is free.

"Subscription is the only way platform owners will earn. And at some point consumers will also start paying for content," said Abhesh Verma, COO, nexGTv, a live TV app.

Jehil Thakkar, partner and head of media and entertainment at audit firm KPMG India, said the OTT industry is going through a phase of experimentation, where different business models will be tried and tested before finalising one. "A definite model will emerge in three to five years' time," he said.

Last December, Saikumar of Arre had said in an interview to VCCircle that not all revenue streams would start kicking in from day one and that the company had created a long-term monetisation plan. "Branded content will kick in first, followed by regular cost per thousand impressions-led advertising, followed by consumer revenues," he said at the time.

According to industry estimates, the cost per impressions (CPM) varies from platform to platform. On YouTube, for example, the ad rate is $3-4 per CPM. This means that a video on YouTube makes about Rs 2 lakh if it receives one million views. Of this, about 45% is paid to YouTube and the content creator gets the remaining. If a company moves the content onto its own platform the ad rate drops, depending on the number of eyeballs the content generates.

AVT Shankardass, chief executive, Victory Investment Fund, said the online video space is a wait-and-watch game. "If one enters with an aim to start making money from day one, that is definitely not going to happen," he said.

Herd mentality While many homegrown OTT platforms aspire to be the Netlfix of India, they often forget that only compelling original content made the US digital startup a global phenomenon. But original content costs money. Online content creators are now investing as much as a TV production house to create original content. For example, a 20-minute episode aired on a Hindi general entertainment channel costs Rs 6-7 lakh and 8-9 lakh in case of a mythology serial.

Eklavya Bhattacharya, chief strategy officer at Balaji's Alt Entertainment, said one has to find a balance between the cost of creating quality original content and being able to monetise it. "While great content such as Game of Thrones will definitely bring in the desired set of fan following, one needs to start cautiously," he said.

So what does the future hold for digital content firms? Screwvala said younger audiences are looking to the digital medium to engage them with genres closer to real life and that the content space offers unique opportunities for those who want to disrupt the market.

But he warned the biggest risk is that entry barriers are low and so a "herd mentality" will follow where many will enter this medium. "That will bring short-term fragmentation but will also force innovation and push all to excel and raise the level of content and narrative in the digital medium," he said.

Has Screwvala's exit left a dent in the OTT segment in India? "No," said Krishnan Rajagopalan, co-founder, head of content and distribution, HOOQ. "The market is still full of opportunities and there are some real opportunities for players to cash in on that."