Covid-19: For movies, OTT is rewriting the script

Theatres face a grim future in the post-Covid world; OTTs may be paying top dollar now, but producers could soon favour them

It has been a long interval. And, we are not sure when we will be going to the movies next. So, it is wonderful many more films are now premiering on OTT platforms. Some of these were scripted for digital releases, but the lockdown has pulled away many films originally meant for the theatres and put them on Amazon Prime, Netflix and Disney Hotstar. If cinema theatres don’t open soon, many more producers may be compelled to go directly digital.

The money’s good; going by media reports, the premiums are 20-30% over budgets of Rs 25-30 crore. At a reported Rs 65 crore, Gulabo Sitabo has more than recovered its Rs 30 crore budget. The scramble for content has begun.
If video-on-demand platforms are over-paying, as they sure are, they are hoping to attract audiences and, from the looks of it, they could soon boast some serious viewership. One study by EY said that 61% of consumers are streaming more content than they were before the lockdown, with time spent on video-streaming surging 1.2 times to an average of 4.2 hours per user per week.

To be sure, these numbers will taper off as fast as they rose once the lockdown is fully lifted and we are back to doing the daily commute. But, there is absolutely no denying that viewers are getting hooked to the variety and convenience of OTT. And, cinema theatre owners—or exhibitors as they are known—need to take note. The theatres may be not-so-full when they reopen, with people staying away for fear of contracting infection and exorbitant prices of tickets. If box office collections, which form a big chunk of producers’ revenues, don’t come in as expected, more producers might be inclined to work on direct-digital releases than we imagined six months ago.

For their part, OTT platforms might need to continue to pay top dollar for premium content, which means, they will haemorrhage for a couple of years more. But the good news is that, unlike in other developed markets, India could see many more advertising-led models. Advertising revenues for digital video are tipped to hit `16,000 crore by FY23 and cross `50,000 crore by FY18. So, as long as there is appealing content on OTT platforms, streaming will not stall—certainly not because of the lack of bandwidth. Many in the industry failed to foresee how the rapid use of smartphones and 4G connections could be game-changers. While it is true that less than 20 million households have access to wireline broadband, there are 500 million smartphones in use; many of their owners seem satisfied with the quality of mobile broadband, even if it is inferior to wireline.

While the telcos have not rolled out their broadband networks beyond a point, a month’s subscription to a wireless broadband connection is today cheaper than a visit to the cinema. An Airtel connection for Rs 1,200 per month is perfectly good to watch standard definition films that use 1.90MB to 7.70MB of data, and high definition ones that use 14MB to 27.61MB. With data costs crashing and players bundling data and content, OTT will become more popular.

Also, cable operators too offer internet access, especially in smaller towns, for those who want it. So, sure, OTT’s not for everyone. A monthly Netflix subscription, if it is not bundled with a mobile phone connection, comes for about Rs 600—and is not affordable for most. Neither perhaps is Hotstar, but Prime Video is way cheaper and there is choice among local players too, in Voot, SonyLiv, Alt Balaji and so on. Many of these come bundled with mobile phone connections. In October 2018, analysts at Kotak Institutional Equities (KIE) had projected a 52% CAGR in OTT consumption over the next five years; OTT, they observed, was likely to contribute 25% to overall video (TV + OTT) consumption in FY23 from around 9% at the time.

The question is how well television channels can compete with OTT platforms—especially the foreign players who have deep pockets. Television viewership will continue to grow since it is underpenetrated in many parts of the country, even if more than 600 million people tune in every day. However, there will be some cord-cutting in multiple TV households. What will hurt television despite its enviable reach, is the big shift of advertising to OTT, but, perhaps, only three-four years down the line.

Cinema theatres too are under-penetrated; India has less than 10,000 screens compared with 60,000 in China and around 40,000 in the US. But, unless prices of tickets come down—as also the price of popcorn which now attracts 18% GST—there won’t be many “houseful” signs.

The modern-day multiplexes have made watching a film on the big screen unaffordable. The magic of the movies has, for many years now, been lost to the middle-class. If occupancies at theatres drop below 17-18%—CRISIL says they will fall to 15% this year—they will post operating losses. To arrest the slide in ticket sales, which bring in 55-60% of revenues and are estimated to fall by more than 50% this year, exhibitors might want to rethink their pricing. Right now, a 30% occupancy gives them an enviable 18% ebidta margin, but lower ticket prices could drive up occupancies. It is worth a shot before people get too comfortable watching movies at home.

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