Investment Opportunities created by ‘cord-cutters’

As of end-2016, more than one in five households in US, have dumped their cable TV subscription for online video services. This is expected to increase to at least over 30% in the next two years. I’m a ‘cord-cutter’ myself and this is my attempt at trying to understand the complex video landscape from the view point of both a consumer as well as a venture investor.

How Big is Video, really?

Streaming video and audio accounted for 70% of entire broadband usage in the US in 2016; this has doubled from 35%, five years ago. Internet is moving from “the thing that brings you websites and email” to “the thing that brings you video”. While much of the increase comes from Netflix and YouTube; newer entrants such as Amazon Prime and Hulu account for 6%, within just a year of their launch.

Broadband bandwidth usage in US

Even social media platforms are chiming in on video. Video is incredibly more engaging as compared to text and gifs, and that’s becoming obvious to most platforms. FB started with auto-playing the videos in timeline and, giving videos more importance in their algorithm, so that it would show up on top; then went on to promote live-stream in a big way and now it’s rumoured to be testing a separate video tab in its app. It is reportedly paying a retainer fee of sorts (in addition to ad-revenue share) to few of its celebrity live video creators to produce content regularly.

Change driven by Consumers, Advertisers and Content Creators

TV as we know it works on an intrinsic relationship formed between big brands that wanted to promote their products, and programmers that were eager to build audiences and monetise their proprietary content. Until recently, these relationships have essentially remained the same.

The “traditional” media and entertainment value chain involved

1) Content creators — Actors, Directors, Script writers etc.

2) Content Owners — Producers or Studios

3) Distribution: Broadcasters

4) Consumption: Audiences via cable or satellite providers

This is being turned upside down — Consumers are now taking centre stage and are no more at the bottom end of the value chain. Driven by internet primarily, content is now being consumed across devices and sources, anytime, at the convenience of the viewer. The value chain has been disrupted so much that, content creators can now reach directly to consumers just through the internet, and decide their own monetization mechanism or even deliver it for free.

This change has been driven not just by consumers, advertisers who are one of the key stakeholders, tend to benefit a lot as well. As we all know, Television Rating Point or TRP as a tool for judging the popularity or viewership of a piece of content is fuzzy at best. Not only do advertisers learn a lot through the viewership patterns of a consumer, they get to combine this with data they already have on that person and place incredibly personalized advertisements, whose conversions are incredibly more valuable (not that, efficacy of an ad placed in TV was even measurable to begin with).

And of course, the other stakeholder, being the content creator, now gets to understand what makes the target audience tick and iterate the content accordingly. The viewership data combined with the sheer interactive-ness of the platform where viewers comment either on the platform or on twitter, becomes much more valuable. Sound cloud, for instance, does a fabulous job for music streaming where the creator gets to exactly know how the listeners feel through the track.

When three of four stakeholders, tend to benefit through a transition, it becomes quite inevitable, obviously provided the infrastructure supports it. Which brings us to the India story.

India gets ready for streaming video

The way I look at it, for OTT (over-the-top) content or digital streaming to work, the following must fall in place

1) High speed, ubiquitous internet connectivity

2) Reliable digital media player a.k.a. platform

3) Illegal access to content should become harder to access

As detailed above, developments in different segments has led to a convergence towards video content in India. Per App Annie, between July-16 to Dec-16, the top 10 video streaming apps in India, increased 600% as compared to the same period in 2015. And EY estimates that India has about 160mn digital viewers as of end-2016.

How can content creators make money?

The three broad ways to monetize content online are

1) Branded Content — Tie up with a brand to ‘sponsor’ the content and craftily merge visibility for the brand in your video

2) Ad-supported video-on-demand (AVOD) — Users watch content for free in return for spending time watching ads — could be banner ads or video interstitial ads

3) Subscription video-on-demand (SVOD) — Users pay a monthly fee to watch either specific niche content or could be a bouquet like that of Netflix

However, despite the wide array of distribution for digital video, the fact is economics for a content creator is still very strained.

Problems with the current models

Low share of ad revenue: In quite a sensational report, Morgan Stanley concluded that in the first quarter of 2016, 85% of every new dollar spent in online advertising will go to Google or Facebook.

The high share of intermediary (over 60%) coupled with rampant ad-blocking makes AVOD quite meaningless. That’s why most of the top content producers in YouTube, use the platform as just one of the distribution mode and have significant revenue coming in through more ‘offline’ channels. See below list of top YouTube channels in India (left) and US (right).

Scalability: With branded content, the issue is scalability. As every video, could be associated with different brand(s), the cost and time for creating the content goes up; while, ensuring that the content doesn’t get downgraded as a video advertorial by a user.

Uniform UX for SVOD — Going direct-to-consumer and charging directly for one’s content can result in both a better experience than many ad-supported media options, and a healthier economic model. While consumers might be open to paying for multiple channels for content — it gets painful beyond a point to handle multiple subscriptions. Therefore, a bundle of sort or at least a uniform user experience is required for multiple producers to co-exist.

Opportunities, the way I see it

Niche is LARGE in India

Chuchu TV — Independent studio based out of Chennai creating nursery rhymes videos and kids songs — Over 7 billion views in YouTube

Thaikkudam Bridge — Malayali Rock Bank with a cult following, driving YouTube views of over a 8 million per video

Glamrs — YouTube channel for beauty, style and fashion advice for women — Over 125 million views so far

Most of the ‘hit’ content producers now have the opportunity to distribute their content elsewhere, apart from just YouTube (where the monetization rate is probably the lowest) — For instance, ChuChu TV is now available in Amazon Prime as well

Some interesting models are evolving in other markets as well

Grokker — On demand at-home workouts and yoga online — subscription based at $15/month — raised over $23mn so far

99 Guangchangwu — Chinese online dance class, focused more towards adults — Recently raised a Series A of $5mn

Meme.chat — Hyperlocal real time streaming app in China where fans get to bid (by paying money) for special requests from performers — Raised $25mn in October 2016

Acorns TV — American subscription streaming service offering curated niche British content (like Poirot) — $5/month — Has achieved 100% YoY subscriber growth since launch in 2011 (See below)

Source: RLJE Investor Presentation

Interestingly, Amazon Prime Video in the US has launched ‘add-on’ packs in the US. Subscribers can therefore easily access other niche content by paying a bit extra. The multiple UI/UX problem is solved here as well.

OTT Landsacpe in the US

We believe that some of these models could work well in India; niche content, especially vernacular content could be a huge opportunity.

Non-fiction content

This category has some definite advantages over fiction —

1) It’s easier to create brand sponsored content in How to tutorials, fitness videos etc. (as opposed to say TVF, where I personally ‘realize’ the ad in the content, far too often)

2) Higher chances of repeated viewership

3) Utility driven content like dance and fitness lessons, might be monetizable through direct subscription

Hence, high quality content producers who have figured out modes of distribution that work for their audience could be an interesting play.

Enablers for Video Platforms and Video Production

With so much video being created, video production has to get simpler and more efficient. The information asymmetry in the industry is very high and is very fragmented as well. Sequoia’s investment in 90 seconds, a cloud based video production platform that enables shoots in multiple countries is very interesting in this context. More such enablers, tailored to Indian idiosyncrasies should arise.

Video platforms, can get so much smarter as well. With on demand viewership, video can become two-sided, either through direct feedback to content producer or can become social, by enabling engagement with other viewers, real-time! Amazon prime has now made videos much more contextual, wherein on your mobile, which is the second-screen you get rich information about the actors, places etc. in a particular scene. Another very interesting start-up, based out of Finland, which recently got funded is promising AI powered video search. This means, it could let you search for something as abstract as ‘epic history movies involving large battles’ and find content across multiple OTT platforms that match the query; check it out here.

To sum up, segments we’re keeping a close watch on are 1) Niche content producers who have identified the product platform fit, 2) Non-fiction content creators and 3) Enablers for video

Video is going to explode in India, soon enough and a lot of interesting companies are going to ride the wave. We are excited and can’t wait to be a part of it.