Content players in entertainment space are in a sweet spot right now

The second of a three-part series analyses how the entertainment industry is skyrocketing with the demand for original content created by OTT players

India’s entertainment industry is on a high. With multiplexes bringing in millennials keen to experiment with new genres of films, and a raft of over-the-top (OTT) players such as Netflix, Amazon, and Zee pouring in money to create more and more original content to woo subscribers, 2019 has so far turned out to be a good year. OTT platforms, especially, have opened up new vistas for content creators — beyond movies and television. OTTs are not only commissioning more content, but are also paying top dollars to buy the digital rights to films.

Says Rajiv Bakshi, chief executive officer (CEO) of Big Synergy, which is part of Reliance Entertainment and makes content for OTT: “It’s a golden period for content creators. Demand for diverse content on OTT has gone up by 30-40 per cent. We are also seeing more investment in research, production, casting, storytelling and so on, so as to create the must-watch appeal.” According to industry estimates, OTT players spent over Rs 2,000-2,500 crore on original entertainment content last year. The number is expected to hit over Rs 3,500 crore this year as all the big boys are moving up from just 4-5 original series per annum to increase volumes. In fact, their total budgets for original content for 2019 accounts for nearly half of what the producers of the top 10 films have already forked out this year to make their blockbusters.

The movie industry is also on a roll. Take the return on investment of the top 10 films through net box office collections (NBOC). It was 2.5 times in 2019 to date as compared to 1.9 times in 2018. Seven of the 10 top films have crossed the Rs 100-crore category, with three of them — Kabir Singh, Uri and Bharat — hitting the magic Rs 200-crore NBOC figure. Devang Sampat, director of multiplex Cinepolis, which has seen a 10 per cent rise in footfalls over the past year, predicts that the next few months will be even better. 

“Content has led people back to the cinemas. There are some big Bollywood releases in the next half of the year such as Dabangg 3, House Full 4, and we are expecting a big response,” he says.

Multiplexes, too, are leveraging on their growth (they already comprise 55 per cent of the total box office revenues from Bollywood) and are opening more screens. PVR, for instance, plans to add 80 more screens in FY20.  

But for content companies, OTT is a great new opportunity to bring in the moolah. Dharma Productions, which hitherto produced only for the big screen, has now set up a separate company called Dharmatic to produce content for OTT. “We will do both fiction as well as non-fiction and we have just tied up with Netflix for original content. Many stories cannot be told in three hours and digital provides a great opportunity for them. We are in talks with OTT players to make content,” says Apoova Mehta, CEO, Dharmatic. 

What makes OTT attractive is that on an average, its cost of content is three to four times more than that of TV programming. This is because, increasingly, Bollywood stars and directors are being roped in to make shows for OTT platforms — and naturally, they don’t come cheap. But OTT operators feel that the high cost is worth it. They need to increase their subscription revenues, and one way of doing that is to offer compelling and exclusive content. After all, while there are 300 million active OTT customers, only 10-15 million pay for the service. And this is a big challenge to overcome.

But though content companies have gained in volumes, the margins have remained stable. Some are now working on a different model — with a higher risk, but better returns. 

Gourav Rakshit, COO of Viacom 18 Digital Ventures, which owns the Voot OTT channel, says some companies are offering content off the shelf and ready to go (the programme has already been produced by them). OTT players, who want to air original content so they can increase subscription viewers but cannot afford the 12 months’ wait to produce collaborative programming, opt for this route. “The margins in this content are as high as 40 per cent to 50 per cent as the production house takes all the risk if the content does not sell. In a collaborative content deal, however, the margins could be a low 20 per cent, because you have a buyer upfront.”

The film content business is also witnessing a sea change. Content that no one would touch earlier, those that were seen as arthouse or too “bold”, are now raking in big bucks. Says Mehta, “Movies set in the heartland with topics which were taboo and those on nationalism are being lapped up by the millennials.” For example, Uri, which is based on the Indian army’s 2016 surgical strike into Pakistan, garnered six times returns on its investment of Rs 45 crore. The success of Kesari or Badhai Ho are also cases in point. 

Another source of revenue for movie content makers are the digital rights of films. Last year, OTT players forked out Rs 13.5 billion for the digital rights to movies. According to projections by KPMG-Ficci, the figure is expected to hit Rs 17 billion this year. Clearly, content players in the entertainment space are in a sweet spot right now.