Implications of Disney+ Hotstar's free mobile cricket content on OTT

Disney+ Hotstar's has decided to offer free cricket content to mobile subscribers. If this strategy continues in the medium term, it may result in higher losses for OTT platforms and lead to consolidation in the industry, says Karan Taurani, senior researcher at Elara Capital. He highlights the negative impact on subscription revenue growth for global/broadcaster-led OTT platforms and emphasizes the importance of the freemium model in the Indian OTT market.

The recently concluded IPL Season 16 saw Disney holding the sole TV rights while Jio Cinema had the digital rights and offered free IPL coverage to its consumers. Elara’s earlier report, "Free-for-view IPL may doom OTT market," released on 10th January 2023, already indicated the disruptive nature of offering high-value content for free in the price-sensitive and fragmented Indian OTT market. Jio Cinema's shift to pure advertising-based video on demand (AVOD) failed to recover more than 35% of its content cost, as anticipated.

Additionally, no major OTT platform has been able to implement price hikes in the past six months due to the disruption caused by Jio Cinema's strategy of offering movies, originals, and cricket content for free (excluding global content). In order to compete in the digital video advertising segment, Disney+ Hotstar has decided to provide free access to the upcoming Asia Cup and Cricket World Cup exclusively to mobile subscribers. This move is expected to bring about significant disruption and change consumer habits regarding payment for premium content.

Over 90% of OTT consumption in India is routed through smartphones, while connected TV penetration remains low (currently at 8%-10%) due to limited fiber broadband coverage and high broadband average revenue per user (ARPU). Consequently, a segment of the audience will have access to premium cricket content for free, and it may take time for other OTT platforms to implement price hikes and start charging customers.

Taurani said that most connected TV consumers will not pay for an OTT subscription to watch cricket on TV, and linear TV may gain more traction as it provides the choice to watch for free or on mobile devices. This shift may lead to a significant decline in high-growth subscription video on demand (SVOD) revenue for Disney+ Hotstar. However, this decline might be partially offset by increased revenue in the slower-growing TV segment, including ad and subscription revenue. Continuously offering cricket for free may also result in a further decrease in Disney+ Hotstar's paid subscriber base, which has already declined by 14% over the past six months due to the IPL's departure.

He said that the Indian OTT market should adopt the freemium model, which offers low average revenue per user (ARPU) for subscriptions to cater to consumer price sensitivity. Pure advertising-based video on demand (AVOD) models may also not be viable due to the dominance of social media, search engines (including YouTube), and e-commerce platforms in India's digital advertising landscape, which collectively command approximately 75% market share as of CY22 (source: Pitch Madison). There are concerns regarding digital advertising, including its cyclical nature and higher dependence on internet and commerce companies. Additionally, the absence of a third-party measurement mechanism for video content limits the potential scale for video advertisements.

Given the high cost of content production and the fragmented nature of the Indian OTT market, having a steady and loyal revenue base in the form of subscriptions, even with lower ARPU, is advantageous. This revenue base can potentially be increased in the medium to long term once the market consolidates.