The management of Chennai-based Sun TV Network seems to have abandoned the earlier ‘hybrid strategy’ for its digital platform and come to the conclusion that an advertising-led model will likely not work in the video-on-demand universe in the longer term.
The company’s Sun NXT app has been by far the most aggressive player as far as showing ads on its content is concerned.
Some movies on Sun NXT used to have ad breaks every few minutes.
Company MD R Mahesh Kumar had, on earlier occasions, rooted for a hybrid model for content apps in India, claiming that there would be space in India for both subscription-based premium apps as well as hybrid apps that depend on both subscription as well as advertising.
The approach was reflected in the prevalence of ads on Sun NXT.
In fact, at least some customers preferred to watch Sun NXT content on third party apps like Vodafone Play and JioCinema instead of Sun’s own platform to avoid the ads.
Almost no other content app — including Amazon Prime, Vodafone Play, JioCinema and Airtel XStream — show ads in between programs. The only exception is Disney+Hotstar, which shows ads in between certain live content, such as cricket matches. But even Hotstar does not interrupt movies and other recorded content to show ads.
Interacting with investors after unveiling Sun TV Network’s latest quarterly results, Mahesh Kumar indicated that his company too is coming round to the realization that ads and apps don’t mix well.
“I have a feeling that OTT will be a pureplay subscription model, because nobody wants to pay money and also watch ads,” he said, after reporting Sun TV’s quarterly performance for the July-September period. “My gut-feel tells me [it won’t be an ad-based market].”
Sun NXT content is currently consumed by around 18 mln users every month, but the vast majority do so via third-party apps like JioCinema and Airtel XStream.
Mahesh Kumar indicated that his company will focus on subscription revenues for its digital products going forward, even if it doesn’t stop showing ads right now.
“Today, it’s not possible [to completely eliminate ads] in India because you can’t get Netflix-kind of prices in India. So there is inevitably some reliance on supplementing the subscription revenue with some ad revenue. But in the long-run, we think we will have more and more of pure subscription revenue and very little of advertising.”
CHANGE IN CHANNELS
Like in case of competitor Zee Entertainment, Sun TV too seems to be getting ready to drive a hard bargain with third-party applications that currently serve as the main avenue for digital sales of Sun NXT content.
Rival Zee Entertainment has abandoned some important content sharing partnerships in recent weeks — including those of telecom companies — and chosen to push its own apps instead.
Like Zee5, Sun too started with fixed-fee content sharing deals with the likes of Reliance Jio and Vodafone Idea.
Under such deals, these companies can make Sun NXT content available free of charge to their subscribers in return for paying a fixed amount to Sun. In comparison, a direct subscription of Sun NXT costs Rs 50 per month.
However, Mahesh Kumar indicated, the days of such easy deals are coming to a close.
He indicated that there are a lot of people in the market who are hungry for content for their apps. Sun Group, which has around three dozen channels in non-Hindi languages, is the biggest source of content in South Indian languages.
As such, he indicated, the group will start transitioning its existing contracts to a per-subscriber model.
In fact, a per-subscriber model will generate far more revenue for the company than the existing flat fee contracts — but it remains to be seen if platforms like Jio and Airtel can make the economics work.
“Increasingly, we will start billing them on a per-subscriber basis. We were working on flat-fee deals,” Mahesh Kumar said, even though flat-fee contracts were being negotiated up as Sun NXT’s content were being delivered to more and more users via third party platforms.
“But we will be flipping that model to a per-subscriber basis,” he said.
IMPORTANT FOR THE FUTURE
At least part of the reason for the move seems to be a dawning realization about the importance of digital platforms as a key distribution avenue for the future.
India’s media landscape has undergone a rapid transformation over the past three years due to the rising penetration of high-speed wireless data, leading to an explosive growth in video-on-demand consumption.
In keeping with the rising importance of digital platforms, Mahesh Kumar said Sun TV will invest around Rs 200 cr in the coming financial year (Apr 2021 to March 22) to create original programming for Sun NXT.
For now, most of the content on Sun NXT is sourced from either the group’s broadcasting archives or its film library. But, he noted, the tastes and profiles of those who consume content on apps and broadcast TV are different. The younger, more modern viewers who prefer video-on-demand have a different set of expectations and tastes which may not match with those of a middle class family watching linear TV in rural India.
Morever, he said, sales of digital content is starting to fetch enough revenue to justify such investments, unlike in the past when they were nascent and perhaps more risky.
“We have stabilized our revenue run rate with multiple sources of sales. We are selling our content to telcos, to other OTT players. We also have a regular subscribers who have come to the app or the website and giving us Rs 50/month, and much higher in other markets such as Singapore, Malaysia and the US. We are now at a stage where our revenue streams are sufficient enough to spend that kind of money, to spend money on originals and not report some outrageous sum as losses..,” he explained.