From eyeballs to dollars: Monetization is the next wave of innovation for Streaming Platforms

The last decade was an exciting phase in the growth of the video streaming industry in India and all over the world. When Netflix released House of Cards in 2013, it was a proposition restricted to the top 1% population of India - who think in English, vacation in Europe, and closely follow the US presidential elections. Since then, we witnessed a tectonic shift in the Over-The-Top (OTT) industry, with smartphones priced under Rs. 2,000 and telecom operators fiercely competing to offer among the cheapest data packs in the world.

Hotstar began live streaming cricket matches for free to Jio’s newly acquired millions of users, and nothing sells better in India than cricket. We saw all large media houses scurry to build OTT offerings before giants like Netflix and Amazon could snatch the market. As Tiktok started another disruption with short-form video, geopolitical conditions and a global pandemic started a new wave of short-form video apps, almost overnight. The digitization of content consumption had hit a new high - first slowly, then suddenly, just like any exciting revolution!

After the exciting stage of “growth at any cost” came the boring stage of “will this ever be profitable”? Executives and investors were sitting on top of tens of millions of DAUs (daily active users) but making paltry amounts of revenue. The eyeballs did not translate to dollars. What made it even more challenging was that in this fierce competition of acquiring users, streaming platforms paid whatever it took to acquire the best content. Blockbuster movies, star-studded exclusive shows, and cricket were the most impactful hammers that could immediately spike up user growth, and content costs went through the roof. But revenue was simply not catching up.

Advertising revenue to the rescue

Can one make a broad-brush but honest observation - the average Indian does not like paying for content. India’s TV industry which reaches 700 million viewers garners subscription revenue of ~$5 billion - that is a mere $7-8 per user per year or about $30-40 per household, making it one of the lowest among large media markets. Most of us don’t mind a slightly longer ad break but paying extra for subscription somehow pinches us. This soon became clear to OTT apps - Hotstar pivoted from a subscription-first strategy to a hybrid model to increase ad revenue, Jio Cinema ran the precious IPL matches without requiring a subscription, and even Netflix started investing in building ads technology. The message from the Indian consumer was received - why pay when it could be for free?

Not to say that the advertising market has lived up to its potential either. At approximately $15 billion market size, it is still around 0.4% of GDP, which is 2-3x lower than advanced markets such as the US and China. The glass half full is that as disposable incomes rise considerably for the first time in India’s independent history, the advertising industry is projected to scale fast in the coming years. Another good news is that most of the recent growth in the advertising market has been driven by digital ads revenue, which for the first time became larger than TV ads revenue - welcome to the future!

Did Big Tech eat your lunch?

While the digital revolution in streaming changed the way content was consumed, unfortunately, it did not change the ways of monetization. Digital advertising was and continues to be sold in models that are largely similar to the TV world. The OTT app would promise a certain reach and frequency to an advertiser to grow their brand. While tracking mechanisms improved manifold in the new world, they were still not directly linked to outcomes for advertisers. On the other hand, global tech giants such as Google, Meta, and Amazon started promising and delivering outcomes to advertisers.

Instead of only branding, they would offer assurances on app installs, number of orders, website visits, leads, engaged views, etc. Performance marketing, the commonly used term in the industry, became a darling in the eyes of the advertisers, but OTTs were restricted to tapping only brand marketing budgets.

Brand marketing revenue is great - one can command high CPMs (cost per mille which denotes pricing) and is intuitively understood by the advertising community. But it has its challenges. Brand spends occur in spurts such as festive or holiday seasons, but OTTs need to make revenue throughout the year and not just for four months. Impact properties such as IPL, Cricket World Cup, Bigg Boss, and Shark Tank are ideal for attracting huge brand budgets, but how does one monetize properties which aren’t the most impactful but still get enough user watch time - think about daily soaps, short-form content, good old test matches, or non-video inventory. As content costs keep rising and inventory remains unfilled, the streaming industry urgently needs new sources of revenue in addition to brand ads revenue.

Big tech (Google, Meta, Amazon) has already captured two-thirds of the $9 billion digital ads market, and the pie left for others keeps shrinking.

Performance Marketing Revenue - The Magic Wand?

Increasing digital sophistication and exceptional tech innovations by big tech companies have made advertisers want much more than branding - gaming wants app installs, ecommerce wants orders, fintech wants transacting users, D2C brands want website visits, FMCG wants completed views and SMBs want leads and direct revenue growth. While they have high expectations on outcomes (performance), they are also ready to open the purse strings and do that all-year around for a platform that can deliver them the desired cost of acquiring high-quality users. While the thesis sounds fairly obvious, building the technology to deliver this is incredibly difficult. But unlocking this open secret more than doubles the market opportunity for tapping ad revenue.

How does one deliver performance? Well theoretically, if you could burn hundreds of millions of ad impressions, you can certainly deliver a few installs or transactions to anyone. But if the streaming platform can be extremely accurate in identifying relevant users for an advertiser using look-alike models and do real-time decisioning using deep neural networks, it could show hyper-personalized ads. Not only does it mean that the advertiser can reach the best possible users, it also gives customers a much better ad experience - irrelevant ads are spam but relevant ads are content. Cutting edge innovations in machine learning can empower streaming apps to launch new streams of revenue and innovative business models.

The next phase of growth of the streaming industry will be directly linked to revenue outcomes. Those who can innovate fast enough to offer better outcomes to advertisers will be able to grow their revenue and continuously invest in better content and tech. Picture abhi baaki hai!

The author of the article is Siddharth Jhawar , General Manager, Moloco, an ad tech company. Views expressed are personal.