The popularity of smart devices in a living room setup is on the rise. Consumers are shifting from traditional devices to a more connected ecosystem. The effect of the prolonged presence of the pandemics and stay-at-home scenarios further catalyzed the need for smart home entertainment. As per our estimates, smart TV sales will likely reach more than 80% of the television sales in 2021, compared to only 67% in 2020.
Along with a connected ecosystem, there is an upswing in the availability of high-resolution content through different OTT platforms. As a result, smart TV and other connected accessories are taking the center stage in the living room setup. Audio is certainly playing a pivotal role in providing an immersive experience.
To further explore this interesting subject, we invited esteemed guests from the industry to be part of a virtual panel discussion. This webinar will be co-hosted by analysts from Counterpoint Research, will include panelists from Flipkart, Sony, Dolby, Xiaomi. We will be discussing the importance of audio in a living room environment. The discussion will be enriched by the unique perspective of the panelists on product design, marketing, purchase journey, post-purchase consumer behavior, and many more.
Watch the recorded version of the webinar by filling out the form below:
COVID-19 has been spreading like wildfire across most of the world. The virus is crippling economies and bringing industries like aviation, tourism, retail, and manufacturing to a more or less complete halt. Services are restricted to essentials and many people are on the verge of or already have lost their job. Consumers in most of the world are in lockdown, some for several weeks or even months. They are forced to be dependent on the digital space around them more than ever. This will trigger some habitual changes, the traces of which can have profound impacts on several industries in the longer run.
Work from home has now become a norm and CEOs and CTOs around the world will have to embrace more digitalization and implement robust remote working capabilities across their organizations to sustain through uncertain situations like these. COVID-19 will accelerate the digitalization of services across the Globe and adoption of products which will help stakeholders access those services seamlessly. Some of the products/industries which could gain more traction after the COVID-19 dust settles will include:
Smartphones and associated ecosystem:
As users are staying at home, the use of smartphones and their application ecosystem will see a sharp increase and potentially, some new users as well. With the closure of offline retail, smartphones are now crucial to access essential services like delivery of groceries, food, news, hyper-local retail, and mobile payments. Users of these services are likely to be more habituated to their use even after the lockdown ends. This will also make some feature phone users realize the important role a smartphone now plays and could drive them to make the switch. The global smartphone market already showed resilience in February, declining only 14% YoY, somewhat less than expected.
Mobile gaming and OTT platforms:
With entertainment options outside the home now closed, mobile gaming could also see accelerating popularity. Users are likely to download newer games or increase usage of existing games and could hook up to some of them for longer. Online game streaming services like Hatch will have a more viable business case now.
People are also heavily using OTT services like Netflix, Amazon Prime, YouTube, and Hotstar. The usage has been so high that some of these platforms have had to limit the viewing quality. These platforms have the opportunity to retain these users for the long term.
The increase in usage of these applications also means large amounts of data generated, which can be analyzed to recommend more curated games and streaming content to customers and increase their stickiness. With such high traffic, this is also a testing time for these platforms. Product managers can use this “usage peak” time to take consumer feedback, analyze data, reduce downtime and improve these platforms to enhance the overall user experience.
Digital transformation of Enterprise: Cloud Computing, Collaborative tools, Remote working capabilities
Digital transformation is almost inevitable for enterprises that want to be resilient to uncertain situations like COVID 19. This is also crucial for public services, health care systems and even education. Governments around the globe will have to embrace digitalization for seamless access to these services with faster responses and more efficient resource management, especially in times of emergency. As companies will prepare for times like these, it will require more applications to be hosted online, which will drive additional business for cloud service providers. The reliability and scalability which cloud offers can help organizations deal with uncertainties like unplanned demand. Cloud will also be a viable option for small and medium enterprises as it is more cost-effective.
Remote working will also lead to an increase in usage of collaboration tools like Teams, Zoom, Skype and Asana. Since work from home is often the only way for office and clerical functions to work, companies will have to think about replacing their desktops with laptops to be prepared for such situations in the future. This will increase the demand for laptops. Small enterprises can also buy refurbished laptops to save costs. It will also underscore that some businesses can manage with less office space while supporting home and flexible working.
Robotics and Autonomy:
One of the worst-hit sectors during COVID 19 is manufacturing. The unavailability of the workforce has led to a complete shut down of the manufacturing facilities of some of the most advanced ODMs/OEMs of the world. Robotics, machine to machine communications, IoT and complete autonomy of assembly lines can help deal with a crisis like this more efficiently by reducing the human intervention to a minimum. COVID 19 can accelerate the path to Industry 4.0.
Telecom Operators:
All these services mentioned above require the base of good internet infrastructure in the background. The increased usage of mobile internet and broadband can help drive ARPU for telecom operators which are significant especially in fast-developing countries like India, where operators are facing high debts and competition. Bundling of some of these services can also help operators increase revenue.
COVID-19 came as a sudden disruption to organizations across the globe. While a shock to the system, this type of disruption will inevitably bring about changes; one of them will be an acceleration toward a more digital world.
Young Indians are driving the OTT Video Content market, with 89% of the users within the 16-35 years age group. Male users account for over 79% of the total market.
New Delhi, Hong Kong, Seoul, London, Beijing, San Diego, Buenos Aires – June 18th, 2019
Young Indians, under 35 years of age, accounted for 89% of the total Indian OTT video content platform users, according to Counterpoint Research’s India OTT Video Content Market Consumer Survey. Among young users, the age groups of 16-24 and 25-35 contributed equally to the overall market. Male users account for 79% of the total users.
Overall, Top 5 metro cities account for 55% of the total OTT video platform users, while Tier I cities account for another 36% of the users. As per the survey, Hotstar leads the Indian OTT video content market, followed by Amazon’s Prime Video, SonyLIV, Netflix, Voot, Zee5, ALTBalaji, and ErosNow in terms of the percentage of respondents subscribed to each platform. Production house-backed local OTT players, such as SonyLIV, Voot, Zee5, ErosNow, and ALTBalaji, are also competing with foreign players such as Amazon’s Prime Video and Netflix. The market remains highly focused on the ad-based model (AVOD), where advertisements drive revenues. However, subscription-based market (SVOD) continues to grow significantly.
In terms of engagement, Counterpoint Research survey found ErosNow users were the most engaged users, with 68% of its users indicating that they watch content on the platform daily. The platform continues to thrive through partnerships. In India, it partnered with Xiaomi for pre-installation on smart TVs. ErosNow has the highest percentage of its users consuming content on Smart TVs. A total of 27% of ErosNow users watch content on Smart TVs. ErosNow also remains the only major Indian OTT platform to partner with Apple for its’ new Apple TV+ service which will launch across the globe later this year. Further, our survey revealed that 9% of ErosNow’s users see content on the platform for more than 21 hours a week. This is the highest among all other OTT platforms in India.
Exhibit 1: Engagement Levels of OTT Users
Source: India OTT Video Content Market Survey
Commenting on the findings, Senior Analyst, Hanish Bhatia said, “India is a young country and OTT video market is a very competitive space in India at present. Platforms are focusing on price innovation, content creation and acquisition, and partnerships as the engine for growth. The low cost of mobile data and affordable smartphones have revolutionized overall video content consumption in India. However, OTT platforms have struggled to register profits, creating an environment ripe for acquisitions or exits. Having said that, new players continue to enter the market as it is expected to record double-digit growth from subscription revenues during the next five years.”
Key Insights:
Overall Market Demographics:
Salaried employees are the largest consumer group of OTT users, followed by students, business owners, housewives, and others.
More than one-third of the respondents indicated that they’re inclined to use free services only, while another one-third indicated that they’re paying for the subscription. Remaining respondents were either on a trial period or indicated that their friend or family pays for the subscription cost.
The smartphone is the most popular device for OTT video content consumption. Xiaomi is the most popular smartphone brand among OTT users.
Jio is the most popular network among OTT users in India, followed by Airtel and Vodafone-Idea.
The most preferred language for video content is Hindi and English. Among regional languages, Telegu was found to be most popular, followed by Punjabi, Bengali, Marathi, Tamil, and others.
Action and Comedy are the most preferred genres. While preference for Action was highest among male users, Drama and Romantic genre content was found to be most popular among female users.
OTT Video Content Platform Analysis:
Local player Hotstar leads the market at present, with a sharp focus on cricket and content partnerships. According to our survey, 56% of Hotstar’s users hail from metro cities. The platform also has the highest penetration of non-paying users.
Netflix and Amazon’s Prime Video were found to be highly popular in metros. Top 5 metros account for more than 65% users of these platforms. This was highest as compared to all other major platforms. These two platforms also have the highest penetration of salaried employees.
However, SonyLIV scores highest among Tier-I cities. More than 40% of SonyLIV users are from Tier I cities.
Voot has the highest penetration of female users. It also has the highest penetration of young users aged between 16-24 years.
ALTBalaji scored highest among 25-35 age group users, which account for 59% of its users. Also, the platform is highly popular in Kolkata, with more than one-third of its users from Kolkata alone. This was the highest among all major platforms.
ErosNow has the largest share (59%) of its users in the 25-39 age bracket in Tier II/III cities, highest among all major OTT platforms.
Background:
This is a primary consumer survey conducted by Counterpoint Technology Market Research through an online platform. More than 4,000 OTT users participated in the survey which was conducted across Top 25 major cities across India. The survey focuses on OTT video consumer demographics, platform consumption trends, content preferences, content consumption patterns, device and network analysis. Key platforms included in the were Hotstar, Amazon’s Prime Video, SonyLIV, Netflix, Voot, Zee5, ErosNow, ALTBalaji, YuppTV, Viu, DittoTV, Hooq, Arre, and Spuul.
Spotify released its earnings for Q1 2019 on April 29. The company managed to have more than 217 million monthly active users, a growth of 5% year-on-year (YoY) with more than 100 million (4% YoY growth) paid subscribers. Its revenue grew 33% YoY to €1.511 billion (US$ 1.690 billion), but operating expenses were also very high. Here are some of the key points from Spotify’s Q1 2019 earnings call:
Building on partnerships: Spotify is partnering with a lot of industry peers to increase its reach. In March, it leveraged its partnership with Google to expand in the UK and France through Google Home Mini promotion. It also partnered with Samsung wherein the app will be pre-loaded in Samsung devices. Further, US customers who buy the flagship Samsung Galaxy S10 device will get a six months free trial for Spotify premium. Spotify has also partnered Hulu. As part of this partnership, Spotify is offering Hulu’s limited commercial plan to its standard subscribers at no additional cost. With these kinds of partnerships, Spotify wants to offer its services to a whole set of new customers who would find it pre-installed in their devices or get it bundled with some other product/service.
Acquisitions: Spotify has been very aggressive in increasing reach in different markets and to different segments through acquisitions. In February, it acquired Anchor (a podcast creation and distribution company) to leverage this platform and tap the podcast-loving audience. It also acquired Gimlet (independent producer of podcast content), to better understand the original content production and monetization. Through such acquisitions, Spotify saves the effort of working on podcasts from scratch and matching the market pace with music streamers as well as the podcast players.
Diversified plan options: On the premium part, Family and Student plans continue to grow subscribers rapidly. The partnership with Hulu in the US has added to the success of the Student plan. Also because of these plans, Spotify has differentiated itself among the peers. We can expect more such unique plan options in the coming quarters.
Increasing Operating Expense: The company has been very aggressive in entering new markets and making acquisitions. Royalties have been a significant contributor to increasing the company’s expenses. Also, the increase in stock price led to an increase in accrued social costs. This led to an increase in the operating expense and thus operating loss of €47 million (US$ 53 million). Despite the improvement in the operating margin by 50 bps YoY, the continuous loss figures is a point of concern for the company.
The US streaming giant Netflix reported earnings for Q4 2018. The company spent heavily on building new streaming content assets, while it kept subscribers glued to their screens throughout the year. The analysis below is a review of Netflix’s year-end quarter and key takeaways.
Key Takeaways:
Revenue: Netflix’s total Q4 2018 revenue (domestic and international) climbed to $4.1 billion, marginally missing the $4.2 billion industry expectation. This led to a 4% drop in its stock price reflecting investors’ disappointment over the revenue miss, although the stock price recovered later. On a YoY basis, Netflix revenues grew 35% YoY in FY18 and the growth was well spread-out periodically as well as geographically. Netflix also moved up the app download charts, particularly in the US, within the iOS ecosystem. The chart below clearly underlines the growing importance of international markets for Netflix.
New Subscribers: When it comes to new subscriber additions, there are multiple positive indicators. In fact, the net addition numbers crossed the management’s own expectations (7.5 million) with 8.8 million new subscriptions in 2018. This continues to come from international markets outside the US. During the last three years, more than one-fourth of the total new additions have come from international markets.
New original content has played a key role in international new additions.
Birdbox, Bodyguard and You were primary drivers of growth in Q4 2018, globally. 80 million+ households watched Birdbox. Netflix has been quite open about sharing numbers lately, be it on social media or in its recent earnings report.
On the local language content side, shows like Elite did very well in Spain as well as with Spanish-language audiences globally.
Pricing: Netflix recently revised the subscription cost of its plans in the US. The overall price increase for different plans ranged between 13-18%. This is expected to generate incremental revenue of $1 billion+ in 2019. Commenting on the price increase during the earnings call, Chief Product Officer Greg Peters said, “Management is confident the price hike will not have a chilling effect on new and existing subscribers.” He further added that the company uses overall engagement levels as the key underlining factor that drives the decision making on subscription cost.
US Market Saturation: The US is Netflix’s largest and most highly penetrated market. Therefore, YoY net adds are expected to remain low due to higher penetration. However, Netflix is working on multiple strategies to keep the margins growing even with low new adds and a price increase is one of the ways to drive bottom-line growth, particularly in the US. Overall, Netflix believes that the US Internet television market size has the potential to reach 90 million homes, so there is still room for growth in the US.
Burning Cash: Negative cashflows remain a key concern for investors. In the fourth quarter, Netflix logged a deficit of $1.32 billion and $3 billion for the whole of 2018. Netflix started investing in original content in 2014, and its content budget has ballooned from $3 billion in 2014 to $8 billion in 2018, along with rising debt (long and short term combined) which now stands at $18.4 billion. Further, the problem is expected to peak in 2019, as Netflix increases its content spends to put pressure on new entrants such as Amazon, Disney+ and AT&T.
Rising FX Exposure: Netflix’s foreign exchange risks are likely to grow as the company expands its geographic footprint. At present, the company is using hedging derivatives and natural hedging in which international market spends are paid in local currency, in case it is favorable.
Local Content as a Hook for Global Content: Netflix wants to push its global content, as local content represents a minority audience. However, Netflix continues to invest in local content to onboard new subscribers and get them hooked to their global catalog.
Speculations for Lower Pricing in Emerging Markets: So far, Netflix has done well even as a premium service across emerging markets, including India and Latin America. It has been successful in gaining new subscribers with a focus on intriguing original content, quality streaming experience, payment channels, and a polished user interface to drive traction on its platform. Therefore, the probability of lower pricing for emerging markets remains low in 2019.
Video content encoding is largely skewed towards AVC or H.264 at present. The need for streaming high-quality video content on networks with limited bandwidth is pushing content providers to adopt new video codecs with high compression ratios.
Encoding video content with these codecs allow content providers to achieve a smaller file size without loss of video quality. However, complex value chain of video content delivery and ongoing royalty tussles amongst different camps has left no clear indication as to what the future might hold.
While media firms and broadcasters seem to favor the traditional choice for now i.e. HEVC, they’re still contemplating their next move. They have three codec options to achieve higher video compression ratios – HEVC (H.265), VP9 and AV1. A timeline of codec development and their launch dates is below:
Among the three, VP9 and AV1 are royalty-free codecs. However, HEVC (H.265), the successor of the existing standard – AVC (H.264), is a royalty-based video codec. This means that video encoders pay a hefty licensing fee to patent owners through the licensing firms.
HEVC Licensing Model and its Tumbling Future
HEVC was introduced back in 2013. It was a royalty-based codec, much like its predecessor AVC, and it promised a 50% improvement over AVC compression. Interestingly, Apple has largely been the flag bearer of the HEVC camps and it is also a key patent owner in one of the licensing pools. It provided native support in Apple devices as well as the Safari browser. Thanks to Apple, HEVC has seen higher adoption in terms of hardware support in devices. This meant that Apple devices were optimized for HEVC encoding/decoding at the chipset level.
HEVC royalty is managed by three licensing pools – MPEG LA, HEVC Advance and Velos Media. Such patent pools enable companies to acquire patent rights necessary for the HEVC standard from multiple patent holders in a single transaction as an alternative to negotiating separate licenses. Their role within the industry, often forgotten, is key to adoption of any new technology. In case of video codecs, they’ve played a key role in cementing the foundation of the existing industry standard AVC, against the previous challengers such as – On2’s TrueMotion VP3, Xiph’s Theora, Microsoft’s VC-1, and many others. Below are the key licensors of the existing HEVC licensing pools:
There was already too much confusion regarding royalty pay-outs among licensors. On top of that, licensing firms came under immense pressure when key licensees joined hands to support a royalty-free codec. This was a major setback to the video codec licensing business. Infact, the chairman of MPEG LA, Leonardo Chiariglione, himself shared his doubts in a personal blog about the crumbling licensing model and the challenges ahead for the video codec industry.
“At long last everybody realizes that the old MPEG business model is now broke, all the investments (collectively hundreds of millions USD) made by the industry for the new video codec will go up in smoke and AOM’s royalty free model will spread to other business segments as well.”
When VP9 was launched, Google was fighting against the odds to push its own royalty-free codec VP9. It made total sense for the likes of Google to work on its own video codec technology, considering the scale of video consumption it was driving (Chrome, YouTube, Android) and the costs involved. Apart from being the primary consumer and biggest beneficiary of this technology, it aimed to enhance the experience on YouTube and Chrome. Google started pushing a royalty-free codec VP9, which offered compression ratios similar to that of HEVC (which was largely doubted by the industry). However, it didn’t gather much support outside its own ecosystem. Firms were quite apprehensive about VP9, as it was competing against the already set standards of the industry which are governed by key licensing firms. Later, it joined the Alliance of Open Media to supplement the development of the AV1 codec.
AOM Challenges HEVC Licensing Pools
The royalty model was shaky. Steam was building up against the royalty-based model due to the high royalties charged by licensing firms and the payment complexities. Key firms in the codec value chain joined hands to form an alliance – AOM, to develop a royalty-free AV1 codec. The list of these firms included Amazon, Cisco, Intel, NVIDIA, Google, Microsoft, Mozilla, Netflix and many others. Obviously, these firms were also the largest beneficiaries of an open royalty-free codec standard. AOM leveraged the features of existing codecs such as Google’s VP9 (for code), Mozilla’s Daala and Cisco’s Thor, and finally released AV1 in early 2018.
The shift favoring AV1 became more prominent when Apple also joined the AOM camp in earlier in 2018. Meanwhile, media owners and distributors are still running tests. Various industry reports suggest that the AV1’s performance is comparable (or at par) with HEVC. On top of that, content aggregators such as Netflix, Amazon, and Hulu (apart from Google/YouTube) are already in support of AV1.
The Future Outlook
As the industry seems inclined to pledge support for the new codec tech, the anticipated success of new royalty-free codecs has exerted more pressure on the video codec licensors. Having said that, HEVC is far more mature in terms of hardware optimizations and software support. The industry also awaits the outcome of existing patent infringement legal battles against the AV1 codec by HEVC flag bearers.
Therefore, HEVC is expected receive priority over VP9 for now. Companies will just sit and watch for a while to weigh the options. They will analyze and compare HEVC and AV1, on lines of encode/decode requirements, hardware/software support, cost, IP risk, HDR support, etc.
It may be worrisome for the industry if it takes the royalty-free path. It will certainly give much needed stability to the video codec market, but this will come at the cost of reduced technical progress, as there will no incentive for companies to develop new video compression technologies. The next two years will be key to these developments. Nevertheless, the market dynamics has given the licensing firms a chance to rethink their strategy, sort their issues and untangle the licensing model mystery.
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