There is lot of bugaboo about the proliferation of digital media in India. India too is estimated to follow the same consumption pattern as in US with surge in internet penetration . However, currently, broadband infrastructure in the country is too inadequate due to which internet penetration is limited to ~27.5%. Further, available wired broadband speeds to paying consumers in India are far below what the service providers promise. A data service package that promises 8mbps typically max out at 5mbps. This is due to high contention ratio (that measures the number of internet users sharing a fixed amount of bandwidth) given limited availability of bandwidth.
Nonetheless, mindset of consumers is rapidly shifting from what is on TV to what do I feel like watching on digital. Hence, with the improvement in broadband infrastructure, promise of 4G and enhanced bandwidth speeds we expect OTT players to do well in India.
Low internet penetration in India
India has ~350mn internet subscribers out of which ~162mn are broadband subscribers (as per TRAI, internet speed above 512kpbs is defined as broadband). Further, ~21m are wired subscribers while the rest ~330mn are wireless subscribers. We expect internet penetration to improve to ~55% in CY20 (at current 27.5%), aided by launch of 4G by Reliance Jio and infrastructure improvement in India.
Another prominent offering by Reliance Jio apart from wireless internet services is wired broadband. The company has laid 0.25mn kilometres of fibre optic cables. Over next 3 years, Reliance Jio will more than double its fibre footprint. We believe the company will focus first on wireless broadband and then roll out its wired broadband businesses. Given this, companies like Hathway and Den Networks will expedite their broadband expansion which will in turn improve the wired infrastructure in India. According to a global survey by Akamai, India’s average internet broadband speed is 3.5mbps. While internet penetration has been improving in India, the country’s internet speed lags far behind its Asian counterparts. South Korea tops with 29mbps speed, which is more than 4x the global average of 6.3mbps.
Broadband ARPUs not favouring OTT companies
In the US, per month cable TV ARPU is USD60. This is one of the primary factors that drive the success of OTT companies (especially Netflix) in the US. The US cable industry saw dramatic rise in ARPU, partially aided by the analog‐to‐digital cable TV transition and additional fees for HD boxes. The pay TV providers have also passed on higher costs from the TV networks, in part due to higher prices for premium programming, such as, live sports and high‐budget original content. Thus, when Netflix was launched with lower ARPU, it gained traction in US.
In India, however, OTT subscription rates (for SVOD) vary from INR50‐500/month/subscriber. Further none of the OTT companies provide complete TV content. In addition to this, the subscribers have to pay broadband charges which are very steep. This is the main detriment for Mass OTT Push though Reliance Jio with its FREE offering has challenged the dynamics of the market for now.