MUMBAI: Disney+ Hotstar could have 25 per cent of the total online video revenue pie by 2025, second only to YouTube, according to Media Partners Asia (MPA) projections for India’s online video sector.
Such growth will be dependent on a number of key factors and growth levers, including:
1. The platform must sustain and accelerate the pace of its investment in product innovation, content creation and acquisition as well as retain its key sports rights in order to grow subscribers, drive viewership and stay ahead of aggressive global and local competition.
2. Develop new features and services including gaming & the aggregation of more local live and on-demand content as Disney+ Hotstar consolidates its position in the industry as the leading video platform for premium entertainment & sports.
3. Expand its technology and potentially brand to Southeast Asia, including large-scale emerging markets such as Indonesia and Thailand.
Disney+ Hotstar could reach 93 million paying subscribers by 2025 at monthly ARPUs under US$1, as per MPA’s base case analysis. This equates to US$587 million in subscription revenue by 2025 while advertising sales could reach US$314 million. MPA’s advertising sales assumptions are volatile due to a challenging 2020 and the uncertainty on the sports calendar in the outer years over 2024-25. MPA analysis excludes any impact from new services such as gaming or expansion to Southeast Asia.
Revenues will contract in 2020 because of the impact of Covid2019 on the advertising market with TV bearing the brunt while digital video will also come under pressure. Disney+ Hotstar’s advertisement packages are typically bundled with TV and this year is no exception.
Meanwhile, subscription through 1H 2020 has benefited from the launch of Disney+ in April. Despite the absence of the popular IPL cricket tournament, Disney+ has contributed meaningfully to premium tier subscriber growth. As a result, the Disney+ Hotstar platform has remained churn positive through the 1H 2020 period, according to MPA analysis.
Impact of Disney+ launch
Disney+ arrived in India in March 2020 at a huge discount to its global price. Since launch, the service has seen traction across Disney+ Hotstar’s premium segment where Disney brand awareness (i.e. Marvel shows and movies) is high. In the larger, more mass VIP segment, there are caches of the Disney content (i.e. kids), which have found traction.
Pricing strategy
Pricing, content mix and tech are key pillars of the Disney+ Hotstar strategy. Pricing has been important given that India’s large pay-TV universe only pays US$4 per month for a wide range of live TV channels, including sports and entertainment. Low ARPUs do not justify shorter duration packs. Therefore, the key to creating an online subscription business at scale was always anchored towards annual offers at attractive rates, in line with Hotstar’s SVOD strategy prior to 2020.
Netflix, for instance, has introduced a low-cost mobile pricing strategy to cater to the mass market, which has driven net additions since Q4 2020. MPA estimates that Netflix reached almost four million subscribers at end-April 2020 with significant growth across its mobile tier. Disney+ Hotstar’s major differentiation has been its vast aggregation of premium local and international entertainment and sports, driving its present-day addressable market to 100 million + subscribers.
Quantifying Disney+ benefits. MPA estimates indicate that Disney+ is contributing 20 per cent to Hotstar’s premium subscribers in total with upside potential of 25-30 per cent. On the VIP side, the seeds are being sowed for a more bountiful harvest, but we estimate that Disney+ has already contributed to 20-30 per cent higher volumes. Last year in 1H 2019, Hotstar had launched its VIP service in conjunction with the IPL. This year, without IPL, bolstered by Disney+, new local originals (i.e. Special Ops), and a massive library of local & international content, Disney+ Hotstar remains churn positive.
Marketing. In the absence of the IPL, marketing has been a challenge, especially because IPL has a reach of 400 million across TV and online (150 million alone on Hotstar on last year’s opening day). This year, Covid2019 has negated the impact of outdoor and print media. Digital platforms remain even more critical, and Disney+ Hotstar has relied heavily on digital marketing and Star’s own television network for targeted awareness building.
Technology
Hotstar’s tech and product has evolved considerably since its launch. Hotstar first launched in 2015 when it was owned by 21st Century Fox, a simpler time when online video only generated US$135 million in revenue and was almost entirely dominated by YouTube while the TV industry generated US$7.5 billion in revenue, including advertising and subscription. Today, internet video is on track to generate US$1.4 billion in India while TV is maturing at US$10 billion.
Hotstar’s product tech was initially built to deliver professional, high-quality curated content at scale. Its first cricket broadcast of an India vs Pakistan cricket match in January 2015 generated five million CCUs. By 2019, cricket matches on Hotstar were generating CCUs of 25 million+. In addition, Hotstar originally had to contend with ubiquitous mobile phone distribution with different specs and varying quality along with data pricing. The latter was prohibitive back in 2015 though it has become more affordable now due to a Jio-led transformation.
Subsequently, after Disney’s acquisition, Hotstar has grown personalization and search functionality as the platform has invested towards scaling its premium entertainment proposition. With the launch of Disney+, Hotstar has further retooled its platform UI and backend tech. Meanwhile, social media interactivity is growing on the platform across live sports and is set to be extended to entertainment soon.
