Streaming players have been in some sense the saviours of production houses and die-hard content producers. The risk of uncertain returns on content is being transferred to streaming players as they bear the brunt of the vagaries of audience preferences, says Dr S. Raghunath, Professor of Strategy, Indian Institute of Management Bangalore

A recently released Indian documentary movie on a streaming platform called ‘1232 kilometres’ about the journey of seven daily wage labourers cycling to their village home during the pandemic and the subsequent lockdown received rave reviews. The emotional core of improbable hope with the pandemic as the villain and suspense generated in completing their journey evoked sympathy. In this unconventional thriller it is a general sense of justice that underlies the hope for the triumph of the protagonist and the defeat of the villain.

With physical movement restrained and common viewing arenas such as theatres being passe in the world of virus mutation, the human hunger for entertainment has increased.

The morose, monotonous grind of everyday life encumbered by restrictions on physical movement has made hearts grow fonder for the excitement of watching a movie, web series or a reality show on television channels or streaming platforms. With smartphone brands vying with each other to gain market share, unlike broadcast or cable networks, online services allow mobile phone viewers to watch content on demand. This facilitates binge viewing, the recently popular practice of watching multiple episodes of a single television show in one sitting versus watching an episode a week on traditional networks.

Risk of returns

Streaming players have been in some sense the saviours of production houses and die-hard content producers. The risk of uncertain returns on content is being transferred to streaming players as they bear the brunt of the vagaries of audience preferences.

The subscribers may have subscribed to multiple services to satisfy different content needs. Streaming players therefore have a high customer acquisition costs while the long-term loyalty of customers is anybody’s guess.

They use algorithms to match subscribers to content, thereby offering advantages of customization and delivering it anywhere and everywhere as long as the subscriber has a device. In spite of these differentiating capabilities customers hover around subscriptions to multiple streaming platforms.

Content is king

Content remains the key value driver of streaming players in their current streaming model. Streaming players bring quality content that is ad-free and accessible anytime, anywhere. That has led customers to expect quality and premium content. In fact home grown start-ups in this space like AHA have grabbed market share by offering focused vernacular content.

It is common knowledge that quality and premium content come at a price. Recognizing that remaining a distributor of content has its limitations, incumbent streaming players are attempting to get away from their business and financial dependencies on major studios. Therefore, they are actively pursuing their own local content production. However, producing content can be very expensive while customers continue to prefer watching licensed content.

However, the streaming players are determined to control the streaming value chain by making content original and exclusive. They are making huge investments in content acquisition, licensing and production possibly leading them to substantial debt obligations.With increasing competition, the cost of content is likely to increase. And paying more for an asset could eventually reduce future returns leading to lower margins. Moreover, investments in original content require more cash upfront in comparison to licensed content.

Streaming income in the near future may not always cover the acquisition costs of streaming content assets giving rise to negative cash flow from operations which could in all probability lead to additional debt.

Silver lining

However, the silver lining is about the use of data analytics in understanding customers’ needs, a key strength of streaming players which could create value for third parties. With the imminent introduction of 5G technology and edge computing, video experience can be enhanced with 5G’s higher data rate to support 360° viewing, especially in panoramic content, where 5G provides substantially higher capacity. Streaming platforms can consider adding virtual reality and augmented reality, with gaming and other use cases, which can enhance user experience. Cloud gaming and esports experience are other venues of monetizing as they can be improved by lower latency and higher data rates.

The business model of streaming might expand in the future to include gaming and advertising connected to the profile of gamers.

The bouquet of entertainment could grow richer, wider, and deeper in access and functionality.