Streaming services battle poor conversions from free to pay subscribers

Video streaming platforms in India are struggling with low rates of free users converting to paid subscribers with a recent report by media consulting firm Ormax estimating that only 18% of India’s 99.7 million users of advertising-led video-on-demand (AVoD) platforms are ready to turn to subscription-led video-on-demand (SVoD) services.

Media industry experts said very few Indians in smaller towns pay for entertainment not just by sheer force of habit but also because of the variety, choice and convenience offered by free video platforms including YouTube and services like MX Player. Short form video is also considered a huge catalyst in the growth of AVoD platforms. Yet others says that the recent changes in online payments introduced by RBI — where a user needs to okay even monthly online payments everytime — as cumbersome. 

According to a Deloitte report, AVoD is expected to continue to pull in more revenue than SVoD in India, increasing its current rate of $1.1 billion in 2021 to $2.4 billion in 2026. Over the same period, SVoD is expected to grow from its current $0.8 billion to $2.1 billion. SVoD subscriptions may also be affected by the bring-forward effect of Covid-19 as the currently accelerated growth rate may taper with the pandemic subsiding, the report said.

“India is a country where audiences are used to getting their video entertainment for free, or at very low price points. A family of four can still watch about 100 TV channels at ₹400, which comes to about ₹3 per person per day. Paying for content is not something everyone in India has warmed up to,” said Shailesh Kapoor, founder and CEO, Ormax Media who expects the overall digital video market to grow at about 15% per annum over the next few years, and SVoD at 10-12%, which means more people will enter the digital video universe than those who will transition from AVoD to SVoD.

Video streaming platforms are not expecting major changes in user behaviour  especially in tier-two and tier-three towns as all genres of content are freely available on AVoD services, said Sourjya Mohanty, chief operating officer of  EPIC ON and Stream-Sense, owned by IN10 Media Network. Such content is available on  YouTube which has a paid offering but continues to see ad-supported programming as a mainstay, said Mohanty.

“Getting users to upgrade, if at all, from a monthly to annual subscription is very tough, which is why many services have now begun pushing annual plans,” Mohanty said.

Users are more drawn to particular shows or movies over platforms and hence prefer to take up quick subscriptions to watch those individual titles. Such behaviour leads to lower ARPUs  or average revenue per user on a paid service. For instance, Disney+, the international video streaming service owned by Walt Disney generates ARPU of $6.32 in the US and Canada and $6.35 in other international markets. However, its service — Disney+ Hotstar — that operates in India and other Asian countries, clocked an ARPU of $0.76, according to its latest earnings.

India has a massive appetite for short-form video content, driving growth for the AVoD ecosystem, said Subhasish Gupta, managing director, sales, India and SAARC Region, Brightcove, a global provider of cloud solutions for video. “Engaging with viewers by capitalising on the short spans of audience attention is a significant factor in boosting viewership for AVoD models. AVoD services provide a low barrier to entry for most consumers, requiring minimal information to start watching. This ease of access to high-quality content, the broad availability of the internet, and dependency on smartphones are fueling growth for AVoD services. Many streaming services are moving back into the AVoD model since it is easier to reach and engage with audiences and achieve ROI,” Gupta added.

While viewers in tier-one and tier-two towns are taking up subscriptions if they have paying capacities, many in smaller towns are still accessing pirated content, Vibhu Agarwal, chief executive officer and founder of video streaming app Ullu pointed out. “These are people who are mentally prepared for ads, unlike those in metros who don’t have time for them. The other challenge is the recent RBI mandate that has made online payments difficult,” Agarwal added.

Sidharth Singh, co-founder of marketing agency CupShup said India’s OTT market is still nascent. The audience would like to watch the scene unfold and market to consolidate before handing out their hard-earned money to the leader, he said. Further, during the lockdown, audiences may have subscribed to platforms given the time on hand but with life returning to normal, many customers aren’t renewing subscriptions and it may take time for them to revisit their decision and come back to the platforms, Singh added.

With movie theatres now open and several live entertainment experiences available, there is bound to be some slowdown in subscriptions compared to the past two years, said Mihir Shah, vice-president at advisory, consulting and research services provider Media Partners Asia (MPA). “As the GDP grows, there will be higher consumer propensity to pay. The idea behind platforms investing over a billion dollars annually in content is that a bulk of it will be behind paywall,” Shah explained.