The economics of free content: How will the big disruption impact OTT sector?

The OTT space in India is seeing the rise of a new business model- offering premium content for free. JioCinema, the official streaming platform for IPL 2023, provided free access to the recently concluded T20 league. Following suit, Disney+ Hotstar too has now announced that it will provide premium sports programming for free. According to a recent announcement by the platform, viewers who access Disney+ Hotstar via a mobile device will be able to watch the Asia Cup and the ICC Men's Cricket World Cup games for free. The move will allow more than 540 million smartphone users in India to watch these games for free.

This trend of free content is sure to heat up the intensity of competition among players in the OTT category, causing further disruption in the sector. While the lure will definitely bring in more viewers to these platforms, how will it impact their subscriber base and revenue generation is a question that is yet to be answered.

According to Disney+ Hotstar, the move to lift the paywall for mobile-only viewers of the Asia Cup and the ICC Men’s Cricket World Cup is aimed at further democratizing the game of cricket and making it accessible to as many mobile users in India as possible.

Explaining the business strategy behind the move, a senior media executive, on the condition of anonymity, shared that by making sports content free, the platform will not only garner millions of eyeballs but will also be able to attract small to medium size businesses along with the bigger ones. “We have already seen that JioCinema’s move of making IPL free has worked out for the platform,” said the executive, adding that the decision will work out well for the platform. 

Another industry expert, who also wished to remain anonymous, shared that the move to offer free content on OTT makes sense as it is no longer digital and TV now, unlike earlier when marketers used to buy digital as an add-on. 

“Marketers now have to choose between TV and digital. Digital is where people are watching and spending time. Hence, it makes an obvious attempt to make sports content free. It's a content war to draw more eyeballs,” he said, and mentioned that according to multiple industry reports, the digital AdEx has already surpassed TV. 

According to Pitch Madison Advertising Report 2023, digital AdEx has grown by 35% in 2022 and this is on top of a 50% growth in 2021. Over the last two years, digital has doubled in size from Rs 16,974 crore in 2021 to Rs 34,405 crore in 2022. With this growth, its share has further risen to 38% and it has overtaken TV to become the largest medium in Indian AdEx. 

Bringing in the good-old TV vs Digital debate, another industry expert claimed, "Offering free sports content does not imply that television is no longer an important medium. If you see IPL viewership on TV, you will notice that it has surpassed previous year's record. When compared to previous years' editions, viewership has only increased. Whether it's free or not, there will always be buyers for television," 

However, highlighting the other side of the big disruption, a report from Elara Capital claims that the move by Disney+ Hotstar to offer cricket content free to mobile subscribers, if continued over the medium term, may result in higher losses for OTT platforms and lead to consolidation, as many may be unable to survive with low ARPU and free offerings. “This will be a big disruption and change audience habits to pay for premium content,” it said.

The report indicates that this move will negatively impact subscription revenue growth for global/broadcaster-led OTT platforms which are SVOD/freemium based respectively. 

“Offering premium content free does not augur well, as we believe freemium is the best way ahead, as India OTT already deals with challenges like lower ARPU on OTT,  high content cost, a fragmented OTT market, and dominance of social, search and commerce in the ad market.”

“This may lead to a sharp fall in high growth SVOD revenue for Disney+ Hotstar, which may be partially offset by increased revenue in the low growth TV segment (tad better ad- and subscription revenue). Offering cricket free may also lead to a bigger fall in Disney + Hotstar paid subscriber base (already down 14% over the last 6 months due to IPL moving away), if continued over the medium term,” said Karan Taurani, SVP, Elara Capital.