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Netflix and Amazon Prime: The streaming disruptors

  Increasing Internet penetration has led to the availability of high quality video streaming content. Heavyweights like Netflix and Amazon Prime are already disrupting markets, with movies, TV shows and other entertainment content available at very low prices.  

Dr Suresh Srinivasan

Over the Top (OTT) service providers are taking complete advantage of the emerging Internet penetration. With access to the Internet sharply increasing both globally as well as in developing countries like India, the OTT service providers like YouTube, Netflix, Amazon Prime, Hotstar, Hulu, and other players like Skype are extensively honing their skills to deliver value and content to the customers.

What is OTT?
OTT players stream their content, or allow the customer to use audio and video communication services, over the telecom service provider’s network. This means that the telecom service providers like Airtel and Vodafone in India do not have any control over the customers using their Internet connectivity, either through their mobile phone or through their Wi-Fi-connected broadband services to watch movies on Netflix or Amazon Prime.
Such a development has enormous implications to network service providers, as a substantial part of their revenue streams is actually leaking through to the OTT players, who collect subscriptions for watching movies on their platforms, such as Netflix and Amazon.
More importantly, with the severe competition that the telecom network players are encountering, such a leakage of revenue has the potential to be quite damaging. Especially with the entry of Jio and the ridiculously low offers that are prevailing on ‘data plans’, telecom users consume a high level of content from OTT players like Hotstar and Amazon. Telecom operators not only had to drop their rates due to the rigorous competition, but also witnessed their customers using and paying for content offered by OTT service providers without being able to monetise the same.
The way telecom subscribers are responding to the onslaught of the OTT players is very interesting, though. Airtel, for example, recently announced a partnership with Amazon India to offer a one year subscription of Amazon Prime free of cost to its postpaid subscribers. Given the widespread acceptability and expectation that consumers have for OTT content, one might actually wonder: What other options do these telecom companies ultimately have!

Amazon Prime vs Netflix
Revenue from Amazon subscription services (including Prime) $3.2bn
Amazon Prime subscribers 105mn
Netflix revenue $11.69bn
Netflix subscribers 117mn

Internet technology
Internet penetration is a major driver for the enhanced activity of OTT players. For example, around 34% of the Indian population today is connected to the Internet. This translates to around 45 crore Internet subscribers in the country. Globally, there are around 400 crore Internet users, which translates to more than half of the world’s population being connected to the Internet.
The next few years promise to be extremely disruptive, with newer technologies likely to be deployed in deeper penetration of Internet. Drones and balloons flying at substantial heights are likely to beam Internet connectivity, covering substantially large areas of population. This will step up Internet penetration and see a large part of the global and national population hooked up to the Internet.
India, for instance, already has around 130 crore mobile phones, which translates to 96 mobile phones for every 100 population. Countries like Brazil have close to 150 mobile phones per 100 population. What’s very interesting is that more than 80% of the users in India access the Internet through their mobile phones, and only 20% of the Internet users access Internet through desktops.
With increasing Internet penetration, and that too using smartphone devices, OTT players are going all out in readying themselves to take advantage of such opportunities.

Amazon and Prime Video
Amazon has smartly tied up with a telecom player and is taking advantage of its dominant position in the e-commerce industry to spearhead its Amazon Prime Video streaming services. It is currently offering an annual subscription at `499 for unlimited streaming of movies, TV shows and other entertainment content; this works out to a ridiculously low subscription rate of `40 per month. Added to this, Amazon will offer preferential delivery and discounts for having subscribed to Amazon Prime, in effect a very interesting bundling service to gain first mover and competitive advantage in both these businesses.
Having established a firm business model and assured of a large population of Internet users very much in the vicinity, the monies being sunk into creating original content by the OTT players is simply mind boggling! The budgets for creating customised movies and high quality content are far higher than even many established movie production houses and broadcasters’ budgets!

Netflix mania
The Crown, a 60-hour, 10 episode television series custom made for Netflix at a cost of around `500 crores has been well received by the audience; such is the audience and their ability and readiness to pay for such streaming services. Such a spend is unheard of for serials and TV shows, for which the OTT players are ready to spend much more than movies produced for theatrical exhibition.
Netflix is reported to be spending more than `35,000 crore per annum in developing original content exclusively to be accessed by Netflix subscribers. Amazon is not far away, either. Both Netflix and Amazon have each more than 100 million subscribers today.
New players like Walt Disney have also announced that they will enter this fast growing lucrative business. Disney is a strong player that comes with such an enormous strength and pedigree in this business that it will make a lasting impact to the industry when it enters the on-demand television network next year. Disney has also announced that it will pull all Disney content out of Netflix, when it commences its streaming services, and is certain to hit Netflix’s revenues.

The growth in the subscriptions of OTT players month over month is increasing at a very high rate. It is also believed that the next big thing in online streaming will be live sports content, which traditional TV channels and cable operators currently own. Analysts believe that it is only a matter of time, once the OTT players have reached a critical mass, important live sports events will become available through the on-demand OTT services.
With next generation smart TVs capturing Internet streaming like YouTube, Amazon Prime and Netflix directly, as well as gadgets like Chromecast and Amazon Fire Sticks being available to cater to “not so smart” TVs, the mega trend of the OTT players’ emergence and dominance simply cannot be underplayed.
From the trend and pace, it looks tempting to assess that traditional television and the cable TV are now on their deathbed and counting their days. Many analysts believe so. However, there are critics who believe that traditional TV channels will have their own space, given their convenience and the established ease at which the elderly population currently access them. Hence, a coexistence with the OTT entertainment content service providers is very likely in the short to near term.
In summary, not only entertainment, industries like education and healthcare too will start seeing enormous amounts of content exchange that will happen through the Internet protocol-based technology. Online learning and remote healthcare are already showing very promising growth, especially in developing countries like India, where they will need to leapfrog over the brick and mortar based delivery in order to address their ridiculously low penetration!