Netflix, Hotstar are on a spending spree in bid to win India’s OTT sweepstakes

As competition intensifies in India’s OTT digital video market, leading players are in the throes of a spending spree to grab market share. The rising demand for original shows has progressively become the key growth driver and players are willing to spend more than ever to cover as much ground as possible. This is borne out by the significant jump in expenses at both Netflix India and Hotstar during the financial year ended March 2019. 

The Indian unit of US-based OTT major Netflix saw an eight-fold increase in its total expenditure to Rs 462 crore during FY19. Although Netflix did not provide a breakup of its content costs, its other expenses, which includes costs for content and advertising among other things, vaulted nearly 700%, making up for 88% of total costs.

Disney-owned Hotstar saw a moderate 62% increase in its content costs to Rs 673 crore, accounting for 40% of the total costs, which stood at Rs 1,677 crore.

Almost all top firms expanded their portfolio of platform-exclusive original shows during the year. Netflix India launched shows such as Sacred Games, Ghoul, Lust Stories, Little Things and Selection Day. Amazon Prime Video released at least 10 original shows such as Mirzapur, Harmony with AR Rehman, and Comicstaan. Seattle headquartered Amazon does not break out its numbers for video streaming operations in India. 

During the year, Hotstar, which follows a freemium model, released new seasons of original shows including On Air with AIB, Son of Abish and Better Life Foundation.

The earnings for FY19 show that while higher costs associated with developing original shows is a pain point for OTT players, they are ready to bite the bullet. 

Due to the overall thrust on releasing original shows, Netflix India’s profitability buckled a bit under the cost pressure with its operating margin dropping to 1.42% from 1.81% in the previous year. However, the company managed to continue to post profits at Rs 5.1 crore while its topline jumped 704% to Rs 467 crore, mirroring the increase in the costs.   

Meanwhile, although Hotstar’s revenue doubled to Rs 1,113 crore, the same could not be said for its bottomline. It reported a net loss of Rs 554 crore. 

The need to generate more localised original content seems to be more of an imperative for Netflix, as the company has accepted that it was far behind Hotstar in India.

Netlflix’s global management had earlier said that it was moving towards original content as it is working better for the company in terms of viewership. The company also added that it is willing to spend more money on creating original content if it translated into better returns. 

“Amazing content can be expensive. We don’t shy away from taking bold swings if we think the business impact will also be amazing,” Netflix said in its global earnings statement earlier.

In a recent report, the Indian unit of the global consultancy firm KPMG said that all platforms are investing heavily in the creation of original content as the demand for such shows comes from almost all age groups and it is no longer a millennial phenomenon.

Netflix also seems satisfied with the Rs 199 per month mobile plan it launched in India earlier on a pilot basis, and also aims to garner more revenue through such initiatives.

As per a recent survey conducted by data science firm MoMagic Technologies, one-third of Indian viewers want original and platform exclusive content, equalling the demand for sports. The survey also showed that Hotstar was the most preferred OTT platform followed by Amazon Prime Video and Netflix. 

It can be expected that FY20 will also see a large number of platform exclusive as all the OTT platforms have allocated huge sums to launch original content. While Hotstar has earmarked $18 million for making special shows in seven different languages, Amazon Prime Video plans to double its original content, with seven shows scheduled for launch. Netflix plans to launch 15 Indian original films in 2020. Other players such as Eros Now have allocated $50 million for a staggering 100 originals while Zee5 will launch 72 shows by March 2020 in six languages.