Monday AM Briefing: Disney+ Hotstar & Netflix Face Two Different Paths to Growth in India
As of FY Q1 2022 for Disney, Disney+ Hotstar constitutes 40% of total Disney+ subscribers. This 40% has been the long-term guidance from Disney management. Some part of that number can be attributed to Indian Premier League cricket (IPL), a rights deal which came with the Hotstar acquisition via Fox.
The Indian Premier League, or IPL, is one of the world’s most watched sporting tournaments, comprising 10 teams and over 70 matches. Those rights are up for auction on June 12, and last week the IPL unveiled guidelines that, for the first time, will separately sell the rights to broadcast matches on television and to stream them online. Saritha Rai of Bloomberg writes:
Separating broadcast rights and digital streaming opens the door to new bidders. Amazon, with its Prime Video service, can face off in the e-auction against Reliance’s Jio telecom subsidiary, which has nearly half a billion subscribers in India. Unlike in the past, no consolidated bidding will be allowed.
The obvious question this invites is what the impact will be on Disney: management told a confident story of Disney+’s future without IPL rights in its FY Q1 2022 earnings.
The deeper question is how we think about streaming competition in India, where the market is projected to reach 550MM online video viewers by the end of 2023. Because that is where growth is projected to come for most streamers.
But, as Netflix has learned the hard way, growth in India may not be possible without bundling, and Disney+ is now positioned to lose its bundle after this auction. Will this matter?
Streaming Competition in India
I last wrote about streaming in the Indian marketplace about 1.5 years ago in Netflix vs Amazon in India (NOTE: it is on the previous PARQOR Substack). I identified four factors at play in that competition:
Pricing: the success of streaming apps in India is highly reliant on mobile downloads, and mobile downloads depend on pricing.
Production Budgets & ROI: Available data on production budgets suggested Amazon’s Mirzapur had exponentially higher ROI for Amazon than Sacred Games had for Netflix.
Total Addressable Market: “the propensity — or the capacity — of most of these internet users to pay for a subscription service remains significantly low”.
Disney Plus Hotstar’s built-in scale (more than 300 million monthly active users), IPL cricket rights and library (Disney, syndicated content from global networks and studios such as HBO and Showtime) are real advantages over Netflix and Amazon.
Amazon has found success with aggressive pricing (Rs 129 or $1.73/month), whereas Netflix had opted for an expensive pricing plan until December 2021, when it announced it had reduced its pricing across the board by as much as 60%:
Its popular mobile plan to Rs 149/month from Rs 199/month
The basic plan is down to Rs 199/M from Rs 499/month,
The standard plan is down to Rs 499/month fromRs 649/month and
The premium plan is down to Rs 649/month from Rs 799/month
Management explained in its Q4 2021 Letter to Shareholders that the objective is
to make Netflix more accessible to a broader swath of the population - strengthening our value perception. Our goal is to maximize long term revenue in each of our markets.
COO & Chief Product Officer Greg Peters added on the earnings call that “while we decrease ARM, average revenue per member, as a result of the price decreases, we're going to make it up in more subscriber adds.” It’s a strategy they saw work in Brazil and they believe will work in India, too.
But, Co-CEO Reed Hastings admitted to investors with unusual candor that “the thing that frustrates us is why haven't we been as successful in India.” One estimate has its total subscribers at 5.5MM (1% of the projected Total Addressable Market in 2023).
Bundling in India
I recently spoke with a media entrepreneur who had sold his business in India, and he diagnosed Netflix’s problem refusing to be part of a larger bundle.
His basic point was that, even with price cuts, Netflix is going to struggle to find growth because it is not part of a bundle of other services - like the one Hotstar offers, above, and also the one that Reliance offers via its telecom subsidiary Jio, which has over half a billion subscribers.
In turn, that points to an interesting question for Disney: without cricket in its bundle, how will the Disney+ Hotstar bundle perform?
Management was asked that question on the FY Q1 2022 earnings call, and CEO Bob Chapek said they believed losing cricket was “not critical” to their ability to reach 230MM to 260MM subscribers.
That may be because viewership for cricket on Hotstar has dropped: 25 million people simultaneously watched a cricket match on Hotstar in 2019, a streaming record, but we have not heard or seen a new datapoint since.
Amazon and Reliance are planning to spend above $7B to secure the streaming rights to the IPL, and Disney seems to be at peace with the prospect of losing those rights. The value to both Amazon and Reliance across a population of 1.4B is obvious, as a startup founder told Bloomberg:
“If successful, you’ve captured an attentive audience for six straight weeks every year for five years… It’s the biggest viewership event of the year in India.”
The Amazon vs. Reliance competition has received attention because it will be a head-to-head of two billionaires, Jeff Bezos (worth $275B) and Mukesh Ambani (worth $100B), for the digital streaming rights. They already have an ongoing standoff over the assets of Future Group, an Indian retail chain, so there is drama for journalists and IPL fans, alike.
The bidding will take place in a live auction held over two days online, where “proxies for the two men will have to make minute-by-minute bids and counterbids in real-time”. Notably, Netflix will not be joining the bidding (though Facebook and YouTube may).
Will Disney+ Hotstar be impacted?
Disney seems positioned to lose its IPL rights, but it will still offer other sports streaming broadcasts including the English Premier League. Given that its ARPU for Disney+ Hotstar is $1.03 (up 5% year-over-year from $0.98), the question is whether losing the IPL leaves it in weaker or stronger position for subscriber and/or ARPU growth.
My sense from the limited information we have is that it will be fine. Its key competitive advantage over Netflix will be its bundling of sports - losing a tentpole like the IPL will not change its broader portfolio. Its alternative is Netflix’s model of content, only, and it is notably not pursuing that path.
If Disney's ARPU increases as Netflix's drops, one has to wonder when Netflix will further reconsider its strategy beyond pricing.
A Problem of Transparency
Notably, unlike Disney, neither Netflix or Amazon share any details about their businesses in India. If Amazon wins or loses this auction we likely may not ever know the impact on its business.
This reflects a larger problem in international streaming that is worth noting: the growth stories for all streaming services in 2022 and beyond almost entirely rely on international growth. But, we know very little about most markets, and none of those markets require public disclosure of subscriber numbers.
That puts the future of streaming back into Curse of the Mogul territory, where a lack of transparency implies media company CEOs may be rewarding content creators at the expense of shareholder value. That critique certainly applies to Netflix, which promised "the next 100 million [subscribers]” from India back in 2020. That didn’t happen for reasons Netflix still seems frustrated by, and has not shared.
Few other streaming services share details about their international growth, but that is the growth story that they will be telling investors as domestic U.S. streaming growth stagnates.
Through the lens of Curse of the Mogul, that will create two problems:
Netflix and Amazon has proven that local, international productions can be more cost-effective and higher ROI than domestic Hollywood productions, but a lack of transparency means we may never which streamers are figuring this out and who are not; and,
Like their predecessors, legacy media CEOs with streaming services may never share the key operational, financial or strategic metrics of their international “growth”.
The promised international growth of streaming has echoes of legacy media's pre-streaming past.
Must-Read Monday AM Articles
* International television market MIPTV kicks off this week as the international TV and streaming market is heating up amid billion-dollar acquisitions and a scramble for small-screen talent.
* Netflix are expanding their European presence with a new office in Poland, which reflects the growing importance of Central and Eastern Europe to streaming growth.
* With U.S. streamers still driving local market growth, TV producers in continental Europe are juggling between the Hollywood studio business model — under which Netflix and the likes get all rights in return for full-financing plus a fee — and the pre-existing European model based on co-productions that leave indie producers with backend and give them more creative control.
Emerging "Metaverse"-type convergence strategies
* A year-long poll of 30,000 kids and teens from research consultancy Beano Brain found that brands such as YouTube and Netflix scored highly because they embrace and listen to their creator communities, helping them build autonomy and independence.
* Some eyebrow-raising math on subscriber numbers for the Xbox Pass from Xbox boss Phil Spencer
* In a follow up to the market dynamics that led to the Epic Games lawsuit, Apple announced so-called "reader apps," which allow users to access libraries of content on their phones, will be allowed to use external links inside their apps to enable users to sign up or manage their accounts.
* The emergence of walking simulator games as a genre
Aggregator 2.0
* YouTube is planning tighter integration, monetization and analytics for podcasts
* Deloitte’s 16th annual “Digital Media Trends” survey of 2,000 U.S. consumers was conducted over December 2021 and January 2022 and found the average churn rate in the United States at a constant 37% across paid services such as Netflix, Hulu, HBO Max, and others.
* Some entertainment fans wondering if they can afford the streaming revolution.
Sports & Streaming
* Sports betting marketing promotions has resulted in a cat-and-mouse game between matched bettors and sportsbooks.
* Andrew Marchand of the New York Post reported ESPN retained both star reporters Adam Schefter and Adrian Wojnarowski but had to battle sportsbooks — who would have benefitted greatly from the reporters’ enormous social media engagement — to keep its league insiders.
* World Wrestling Entertainment Inc. is starting to produce fictionalized TV shows, part of an effort to generate more revenue outside of the wrestling ring and capitalize on streaming services’ growing hunger for fresh content.
* Daniel Kaplan of The Athletic reported the NFL is developing a subscription streaming service that would include games, radio, podcasts and team content.
Creative Talent & Transparency in Streaming
* As YouTube's stars pivot or quit altogether, what does the next generation of YouTube creators look like?
Original Content & “Genre Wars”
* Hulu’s 2015 deal with EPIX to carry Paramount and MGM movies ended two weeks ago. The deal had allowed Hulu access to any movies from Paramount, MGM, Lionsgate, and a number of other studios.
* Soon after Will Smith’s attack on Chris Rock on the Oscars stage, Netflix quietly moved the project Fast and Loose to the back burner.
* The Financial Times' Anna Nicolau dove into Netflix's "opaque decisions" around its show cancellation decisions. ($ - paywalled) A Substack post wrote about shows caught in "Netflix Limbo".
* How ‘Bridgerton’ Touches on Colonialism in India
* ‘CODA’ Oscars Win Caps Apple’s ‘Quality Over Quantity’ Approach ($ - paywalled), but How much credit does Apple deserve for ‘CODA’s Academy Awards?
* Parrot Analytics reported that HBO's pirate parody "Our Flag Means Death" is the most popular new series in the US.
* Pluto TV has offered a free preview of episode one of Paramount+ series and video-game spin-off Halo, and its hit series Yellowstone on their More TV Drama channel.
* In Puck News, Hollywood producer David Friendly writes about how ripped-from-the-headlines streaming series are outcompeting box office rivals with faster turnaround, A-list talent, and better paydays. Being second sucks.
Comcast’s & ViacomCBS’s Struggles in Streaming
* Paramount CFO Naveen Chopra told investors at Deutsche Bank’s Media, Internet & Telecom Conference that "Our view is that you’ve got to address the entire household" as a streaming service with scripted content, sports, news, movies, kids content, and unscripted.
* Omincom's media services division Omnicom Media Group (OMG) will be the first agency to integrate with the NBCUniversal Audience Insight Hub.
AVOD & Connected TV Marketplace
* Media buyer reticence around CTV suggests that the market is unsure about the extent to which it can reliably deliver upon its promise. And the reasons for that reticence will be uncomfortably familiar to anyone who has kept abreast of issues surrounding digital advertising more widely.
Other
* Kevin Tran of Variety VIP dives into Netflix's password sharing test in Chile, Costa Rica, and Peru) and argues "it’s likely that some Netflix users in those three countries have people freely using their accounts that they don’t know about".
* CNN+ launched last week, and both Protocol's Janko Roettgers and Decider's Scott Porch offered smart takes on the road ahead for the service.
* Hollywood Reporter's Richard Newby argues, "There’s nothing wrong with legitimate criticism or not liking a movie, but the reaction to the poorly reviewed Jared Leto started months before it even opened."