What Homebodies Watch: Net Fix

IN 1957, WHEN Akio Morita and Masaru Ibuka reinvented the radio by creating a pocket-sized version, little did they realise that they were starting a revolution in personal entertainment that would carry on unabated 60 years hence. Their company, which came to be known as Sony, continued to innovate along those lines by giving us the Walkman, the Discman and also the world’s first fully transistorised Trinitron TV set. While Sony did not invent any of these technologies, it was highly successful in packaging them in a form that consumers never imagined they needed. Other than a live theatre experience, every other form of entertainment can now be personalised. What developed over centuries as a community experience is being redeveloped today as a bespoke engagement of every individual. How Indians are entertained is undergoing a profound shift. Much of it got a boost with the advent of the internet and the ubiquity of the multipurpose screen in each of our pockets that many call the ‘smartphone’.

Consider the way it has altered our lives. While my daughter Aditi has always been a lot more judicious about her school work, my son Arnab has always required some supervision. In that effort, his homework time was set for an hour every day, starting 5 pm — after which he was allowed an hour of TV before he went out to play. But as he moved to higher classes, homework got a bit more demanding. Some days, it would take an hour to finish and on others, maybe 57, 68 or even 71 minutes. This meant appointment viewing of his favourite TV shows was no longer an option. Without much prompting, he switched to video-on-demand, and it no longer mattered exactly when he finished school tasks. Nor did network schedules; last year, we cancelled the cable subscription to the TV in his room. My then 12-year-old had officially ‘cut the cord’. This is not unique at all. Everyone below the age of 17 no longer knows what a non-interactive screen is. There is no reason for Generation Z to return to scheduled TV, unless it’s playing a live event of significance. Cord-cutting has caught the fancy of older generations too. It has been happening globally since 2010 in every household that can afford a decent internet connection. The rate at which consumers are dropping their cable and satellite TV packages hit its highest level ever in the fourth quarter of 2017. Vast numbers will never subscribe to cable TV. In countries blessed with better broadband connectivity, such as South Korea, Japan, Singapore and parts of Europe, cable companies are in crisis. Internet and video streaming technologies have spelt doom for cable company stocks. India is on the cusp of that revolution too—except that it is going to be driven by mobile broadband connectivity. Reliance’s Jio broke the mould by providing affordable data, with market forces drawing Airtel and Vodafone to follow suit. Given such large data allowances, mobile users have begun to download the biggest files of the computer world: digital video. While 4G reach and quality of service still have gaps, the ball in India is clearly rolling that way.

Stockmarkets capture the shift. The market capitalisation of 94-year-old Walt Disney Inc stands at $154 billion, whereas that of the relative infant Netflix is only a shade lower, at $138 billion. So, what’s special about Netflix? The economic power of direct reach. Traditional entertainment giants are essentially B2B firms, Business-to-Business: a TV show producer’s customer is a TV network; a network’s customer is a cable carrier. Likewise, a movie producer’s customer is a movie distributor, whose customer is a theatre chain. Unless such a company is fully integrated end-to- end, it has no interface with the actual consumer, let alone the means to collect money directly. A telecom company, in contrast, is B2C, Business-to-Consumer. It offers services and draws money directly without the involvement of third parties, and often even before the delivery of content.

Till a couple of years ago, most traditional entertainment companies didn’t invest adequate time or effort in a direct consumer relationship. Enter companies like Amazon, Netflix and others, and they managed to get average-revenues-per-user many times higher than even the largest TV networks. This direct connect has helped Netflix grow from a small distributor of DVDs by mail into a content company with production budgets that put the big studios to shame, altering the economics of showbiz like little else ever before. Its original titles are now winning some of the most prestigious awards. With eight Academy Award nominations this year and its first full-length feature Oscar for Icarus, it is now more than a commercial force to be reckoned with. Amazon Prime Video had already achieved that distinction with a Best Picture nomination last year for Manchester by the Sea. In India, too, the two global rivals are making the most of their direct advantage. Consider Netflix’s success with Love Per Square Foot, an Indian film created by my former boss Ronnie Screwvala’s RSVP. In the kids’ TV space, Netflix has ordered Mighty Little Bheem, an original production by Rajeev Chilaka’s Green Gold Animation. Amazon has also signed up material from Zoya Akhtar and several others. Already on Indian mobile phone screens are apps like Balaji’s Alt and Zee5, among others, which are also planning originals to play the same game. Where the entertainment bucks go, content gathers. And vice-versa.

Netflix went past 110 million subscribers in 2017, and with its recent increase in subscription fees, it has delivered its first profitable financial year. Many forecast that it will peak at 400 million subscribers or more. Till then, it is expected to remain a well-run company that produces content loved by consumers and critics alike. Meanwhile, players like Disney are not going to sit pretty watching new apps take over the cord-cutting generation. Traditional firms whose financial performance had been driven all these years by legacy cable bundling are responding to the threat. Disney has just announced a reorganisation of the company into four segments, which include a new direct-to-consumer division to house its portfolio of streaming video businesses. This will include the ESPN+ sports streaming service and a yet-to-be- named general entertainment service slated for a late 2019 launch. It also helps that Disney’s recent acquisition of Fox hands it a majority stake in Hulu, one of the early entrants into this business. Fox+, an online service, would be part of its new thrust. Viacom too has hinted of a streaming service that will supply content from MTV, Comedy Central, Nickelodeon and others. The company has already taken baby steps in some markets through its Voot service, a video-on-demand (VOD) version of Nickelodeon, and also an investment in newcomer Philo.

Traditional content companies are not the only ones trying to reach out over the internet. In fact, the world’s most currently prominent—if not the largest—have had their beginnings within technology companies. In June 2016, Apple took the initiative to form a TV unit by hiring executives to oversee all aspects of worldwide video programming. Since then, it has hired executives for international, comedy and children’s shows, plus much more. Google’s YouTube platform also has ambitious plans. Between Apple and Google alone, they have an installed base of over 2.5 billion delivery devices in the world’s pockets. YouTube Red, a subscription service, is spending up to $1 million per episode on shows featuring Ellen DeGeneres and influencers like Rhett & Link. Facebook has introduced its ‘Watch’ tab that has rolled out several dozen original shows. Even bit players like Singtel owned HOOQ are trying to grab regional markets through its many subsidiary telecom firms’ customers bases. India’s Jio has been buying content and investing in content production at a frenetic pace as well. All this can only mean more choice for the consumer.

Is there space for more VOD or streaming services? Absolutely. When TV first entered our living rooms, we were only served by a few channels. But that number multiplied over the decades. Pay TV today serves every single niche that one can possibly imagine, including specific language markets, regional markets, communities, special interest groups, religious groups and more. VOD in its current form is nowhere close to that reach. While in India players like Hotstar, Zee5, Alt Balaji, Sun Nxt and others have started to cater to previously unserved demand niches for VOD content, most emerging markets in South East Asia, Africa and Latin America still have little to choose from. Technology limitations and lack of access to unlimited data have also left large vacuums in the potential market. Innovation in business models and delivery systems will slowly fill this vacuum and soon there will be newer impactful services that will send content to everyone’s very own screen.

Direct delivery to people’s fingertips will almost certainly reshape India’s TV and film industries. The economics of it suggests so. Consider Hotstar, with its 67 million subscribers; if they were to pay Rs 499 per year, Amazon’s India pricing, it would amount to Rs 3,300 crore, a sum that would easily buy 10 of Hindi cinema’s biggest movies in a year (box office collections inclusive) for exclusive streaming. Now consider the fact that its market potential is at least ten times 67 million, and the financial heft of a successful digital service becomes apparent.

Older forms of delivery are mass media vehicles. Individual users had little choice in when and what content they can watch because their services are in a one-size-fits-all format. Internet-enabled smart screens have transformed the ease of access dramatically. What hasn’t changed, however, is the human need to sit back, relax and watch a nice entertaining story. Individual reach will ensure that what we watch is more personalised than it is now. I look forward to bigger and bolder shows at my fingertips. Content will also see other innovations and will try to deliver an even more immersive experience. Gamified children’s content is already being experimented with. The Singapore-based game hardware company Razer has introduced a mobile phone that offers true-to-life cinematic audio, using Dolby Atmos technologies. Meanwhile, our device screens are getting more sophisticated and are offering human vision-like picture quality. Although it’s impossible to foresee what level these devices reach, we know for sure that we will spend more late nights binge-watching our favourite shows and blaming the ‘wretched traffic’ for our late arrival to work the next morning.

My content company’s biggest share of revenues still comes from the global pay TV business. The recent shift in the environment has prompted pay TV firms to invest in better and bolder content. This is the only way for them to maintain their relevance while they steer towards digital delivery. Personally, though, I had cut the cord many years back. I can’t remember the last time I watched a scheduled TV show, except the occasional grand slam tennis match. I won’t consider snapping off my VOD subscriptions because it offers unparalleled value-for-the-dollar and continues to entertain me with new content every month.

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