The Indian “over-the-top” or OTT market is growing at a 20% rate on a year-on-year (Y-o-Y) basis and is expected to touch Rs 30,000 crore by 2030. This has not only disrupted the mainstream cinema industry but has also democratised opportunities in the sector. This growth can be attributed to the easy accessibility of such content on our smartphones and the boost these platforms received during the Covid-19 pandemic. The nation-wide lockdown imposed during pandemic nudged people to seek entertainment within the confines of their house, making OTTs a convenient and affordable source of entertainment.
Market dynamics
The OTT space, which only had a couple of platforms initially, has seen an increase in the number of players due to increased viewership. Currently, there are eight players above a viewership cap of 30 million visitors in the OTT market. This rise in the number of players, as well as users, has further led companies to adopt innovative strategies to generate revenue which wasn’t the case earlier. Such innovative strategies by OTT platforms have recently become a subject matter of scrutiny where the platforms are adopting various methods to maintain a competitive edge in the market.
Pricing Mechanism
The platforms have had to adjust their subscription fee to their revenue costs which has led to an increase in their pricing over the last year. For instance, Hotstar recently increased its monthly subscription fee from Rs 199 to Rs 299, while SonyLIV has increased it from Rs 99 to Rs 299. Netflix being an established player in the market has been able to maintain its monthly subscription rate costing Rs 499.
The median annual subscription fee for the top seven OTT players in the market comes out as Rs 999. This amount is quite high given that the market is in its nascent stage, with no established loyalties among its subscriber base and a high subscriber attrition rate. So the players are effectively fighting for a share in an extremely volatile market.
The ‘free-ride’
Amidst this fight for market expansion and revenue maximisation, Jiocinema introduced yet another factor in the market which was previously absent. The company chose to stream IPL matches on its website for free, even though it spent $2.9 bn on buying IPL’s telecasting rights . The gains were apparent – even though the company lost on subscription revenues, it got access to millions of users’ attention which was ultimately monetised through the sale of advertisements. The free-ride given by JioCinema has already started hurting the competitors in the market with Hotstar facing a loss of 8.4 million subscribers since October, 2022 and forcing it to recalibrate its strategy.
It is worthwhile to mention that YouTube has been offering free content since the very beginning, and in that sense, Jiocinema may only be a follower. The platform is known to generate revenues on the basis of advertisements. It was recently reported that the company is planning to propel its growth on free content through short videos.
While it may be attractive to say that there are no upfront costs for the consumers to bear at the surface level, a closer look would suggest otherwise, which is best explained with the phrase ‘if you are not paying for the product, then you are the product’.
YouTube’s parent group, i.e. Google Inc., has been accused of providing unauthorised access of user information to advertisers on multiple occasions. This has led to multiple scrutinies. The company has been found violating competition laws across the world, and has lately entered a grey area when it comes to data protection as well. Australian Competition and Consumer Commission (ACCC) further suggested that the lawmaker may need to come up with new legislation to address the harms caused by the company’s conduct in the Ad-Tech space.
Match streaming as a ‘Relevant Market ’
Free live streaming of sports services may further suggest it as a separate relevant market for the purpose of promoting competition. The Indian competition commission, though in a different set of facts and circumstances, held that cricket matches cannot be substituted with other entertainment channels and movies. Therefore, viewers of live sports may be considered as a distinct category.
Sustained growth
From a market economics point of view, it remains imperative that the incumbents aren’t allowed to offer free services for long. This may be truer for entrenched players in the economy. Such a strategy has constantly invited scrutiny from competition bodies across the globe. For instance, in India, the entry of Reliance Jio with free-services was marred with multiple complaints.
Apart from sector-based regulation, it was alleged that such free services not only fall under the ambit of predatory pricing, but also allow Reliance Industries as a group to fuel its entry in the telecom market through dominance in other relevant markets – both the practices prohibited under express provisions of the Indian Competition Act. Even though the telecom industry at that point of time was flourishing with multiple players in the market, Reliance Industries’ deep pockets allowed it to fund its new service well beyond the prescribed time limit, thereby resulting in multiple exits of competing players in the market.
This has an apparent implication on the consumer-welfare standard. Promotion of such a standard has been a long-sought goal of various economic legislations and therefore, it becomes important for the government to conduct detailed stakeholder consultation so that economically efficient outcomes are achieved.
While the government’s focus has been on regulating the content on such platforms, it may be high time for it to assess the market potential and subsequent competition concerns which may be arising out of it. In fact, the nodal Indian competition regulator has been taking such industry-specific studies from time to time as part of its mandate. While the dynamic nature of the entertainment industry may require the government to periodically review its position while regulating, the provision of ‘free’ services, irrespective of live streaming being seen as a separate RM, warrants a second look especially when offered by industry giants. A thorough review of the sector is required given that until now the model has been that of charging a subscription fee for the services provided.
The OTT market is in a growing phase. While there may be immense potential in the market to be explored, price warfare, a sign of brewing maturity, has already begun. When it comes to digital markets, regulations should follow the evolution of the industry rather than trailing behind. In the world of ex-ante regulations, Indian regulators should invest time and resources in conducting research and study on digital markets and engaging with all the relevant stakeholders before arriving at any policy decision.. Ultimately, the larger goal should be to make economically efficient law and policies in the betterment of consumers without warping the market principles.
Sumit Jain is a director at the Centre for Competition Law and Economics and Abhishek Raj is a consultant at the CCLE.
