The Indian Premier League (IPL) was unavailable for free streaming on OTT platforms until JioCinema disrupted the status quo by introducing it on AVOD earlier this year. Subsequently, Disney+ Hotstar was allegedly forced to offer the World Cup and Asia Cup for free on mobile this year.
Most recently, Disney+ Hostar also pulled out its other impact sports property Pro Kabaddi League (PKL) from SVOD and made it free for mobile.
The OTT major said that the decision to enable ad-supported streaming of the tenth edition of PKL closely follows the historic viewership achieved during the ICC Men’s Cricket World Cup 2023.
Historically, major sports properties have played a pivotal role in boosting revenue through SVOD models. The pressing question now is whether ad revenue generated by offering high-profile sports events for free streaming can offset the subscription loss.
There are two schools of thought when it comes to making sports viewing free on digital. Some believe that this approach expands the reach of OTT services and increases advertising revenue.
On the other hand, some argue that the ad revenue growth rate does not adequately compensate for the subscription revenue growth rate which may happen by putting major sports properties behind a paywall.
Shashank Srivastava, Senior Executive Director, Marketing and Sales, Maruti Suzuki, believes that Hotstar making sports for free viewing increases its reach and helps monetise better through ads.
Similarly, Shobhit Gaur, Business Head and Head of Digital Investments, Madison Digital, said that offering sports viewing through AVOD strategy will fuel the growth of OTT in India.
“Sports are widely accepted in our country and by putting them behind the paywall, we are arresting the growth of OTT and content itself. With the Jio test, it is proven that free content allows you to reach a wider audience significantly impacting the reach and retention percentage,” he said.
On the other hand, Karan Taurani, SVP- Research Analyst (Media, Consumer Discretionary and Internet), Elara Capital believes making sports free for viewing will have a negative impact because the revenue growth rate on the ad front is not good enough to offset the subscription revenue growth rate in most cases.
“In certain cases, it can offset the negative impact of lower subscription revenue if it's offered completely free but that's only for the near term because medium to long term basis subscription revenue is more sticky in nature and that holds better ground for a platform to invest in terms of content and to get the vision right,” he added.
Why Hotstar is offering its major sports properties free for viewing
Taurani pointed out that Jio offered IPL for free on JioCinema to build their platform and attract a large audience. Disney, on the other hand, faced a twofold challenge. First, they lost IPL rights, leading to a significant decline in subscription revenue. Second, they underestimated the audience's return for the World Cup, especially since interest mainly revolves around India matches, not the entire tournament.
“India matches are not more than 15-20% of the entire tournament matches as compared to IPL wherein the concurrency or the interest for the tournament is much higher because you have got more number of matches being played. They did not see any revival in subscription revenue purely because of the World Cup as an offering. So it made more sense to go AVOD and try to explore that route of having a higher number of viewers,” Taurani said.
Srivastava pointed out that some of the key reasons for Disney’s strategy of going free on mobile include:
1. Hotstar’s subscription numbers and subsequent revenues were stagnant for the last six quarters.
2. Jio claimed it had overtaken Hotstar in terms of MAU (Monthly Active Users) in April-May 2023.
3. There were internal cost pressures to maintain content libraries and thus need to increase ad revenues.
As per Taurani, another reason for Hotstar to stream properties like the World Cup, Asia Cup and PKL free is the competitive intensity.
“If at one end you've got competition which is offering the most premium content free of cost, you are bound to succumb under pressure and maybe offer your content also for free and try to explore that route,” he added.
On the other hand, Gaur said that he purely sees Disney’s move as a marketing investment.
“Free content boosts organic growth and also acts as a robust retention channel. The two, paid channel versus organic growth, can be seen from a single lens but I believe Jio has cracked the customer acquisition funnel through free content,” he said.
Would letting subscription revenue go do any good to OTT platforms?
Usually, any platform offers free content to maximise reach and advertising revenue. Now, the question arises that considering advertisers’ limited budget, would letting subscription revenue go do any good to OTT platforms?
Srivastava highlighted that Disney has restructured their overall subscription plans. Now they have both ad and ad-free plans. Additionally, they have mobile-only, and mobile + CTV plans. They have only made mobile plans free whereas CTV is still subscription-based.
“At the peak subscription levels of around 60 million a year ago, Hotstar's subscriber base is currently around 37 million. So, whatever loss of subscription due to mobile free would have been more than compensated by additional AVOD revenues. Hence, it looks like the strategy is working for them,” he added.
Gaur emphasised that the solution lies in a hybrid approach. Some OTTs opt for a hybrid approach, offering a mix of free and premium content. This allows them to enjoy the benefits of both models, capturing a wide audience with free content while monetising a dedicated user base with premium offerings.
“In conclusion, the decision between paywall and free content should align with the company's overall business goals, target audience and the nature of the content itself. It's essential to carefully consider the balance between revenue generation, audience reach and brand building in the context of the specific industry and market conditions,” he added.
Sharing his views on the same, Srivastava said that as per Hotstar, they have been able to monetise the ICC World Cup through increased AVOD revenues up to their satisfaction. Due to this success, they are going ahead and implementing the same strategy in other properties like PKL.
While Srivastava thinks ad revenue has the potential to offset the loss of subscription revenue, Taurani believes offering impact properties for free viewing is a regressive idea and loss-making in nature.
He said, “Disney Star paid a lot for the media rights, around $1.5 billion for the last cycle that ended in CY23. That means the content cost alone was about Rs 3,000 crore per year, and adding the production cost for the entire World Cup tournament brings it to around Rs 3500-3800 crore. Looking at the numbers, the platform's ad revenue was not more than Rs 2,400-Rs 2,500 crore on TV and digital ad revenues (subscription revenues could be around Rs 300-400 crore). So, even this year, it was a loss-making venture and in the next cycle, the content cost for the World Cup/ICC tournaments has doubled. It has gone up from $1.5 billion to $3 billion for TV and digital rights (four years).”
Certainly, Star has sub-franchised the TV rights. However, even when considering the digital rights independently, the cost has significantly increased (doubled vs earlier cycle), he added.
“Their losses in digital are poised to escalate further in the upcoming cycle of ICC tournaments (approx cost of Rs 3,000 crore for annual content costs alone, coupled with an additional approx Rs 500 crore per year for production). Consequently, they face the daunting task of generating almost Rs 4,000 crore per year in revenue (2023 CWC digital ad revenue was a mere Rs 800 to Rs 1000 crore as per our assessment) through the World Cup and other ICC tournaments next year onwards for digital platforms (in case they want to achieve an ROI of 20% on the digital rights investment). Unfortunately, achieving this target seems highly improbable at present,” Taurani said.
Furthermore, he emphasised that Disney Star is currently trying to reduce content expenses and might explore partnerships because the Indian market has not proven as profitable for them as anticipated and JioCinema offering content free has added to their woes in terms of competitive intensity.
Meanwhile, Gaur said, “These sports events like ICC World Cup, and Champions Trophy are big-ticket events and it makes sense to move them away from the paywall. I thoroughly believe that the OTT growth will lie in the content availability and if we propagate the paid subscription then we are moving backwards.”
“While the risks stand with the publisher if the revenue trade-off is not well managed, market dynamics are taken care of and most importantly it is in sync with the platform's long-term strategy,” he added.