What the media won’t tell you about the media

EY’s recent report on media and entertainment calls it an industry under renovation. What is changing? How should those in the business look at reinventing the business model? Veterans from the industry discuss the lay of the land

Founding Fuel

Like many other industries, the pandemic has roiled the media and entertainment industry. This Clubhouse conversation explores whether it has triggered some fundamental shifts in the way the industry operates.

The chat comes against the backdrop of a recent report that EY did in partnership with FICCI on the key trends in India's media and entertainment sector.

In the room were

  • Ashish Pherwani, partner M&E, EY, and the lead author of the report
  • Megha Tata, MD, Discovery Communications, South Asia
  • Haresh Chawla, partner, True North
  • Partha Sinha, president, Response, The Times of India group
  • Suprio Guha Thakurta, partner at Accelero and former chief strategy officer, The Economist
  • Mohit Hira, co-founder Myriad partners & marketing; strategic advisor, YourNest Venture Capital; and former chief executive & publisher of Open Magazine.
  • Anuj Gandhi, group CEO of IndiaCast Media Distribution, which is part of the Reliance Network 18 group

The chat was moderated by Indrajit Gupta and Charles Assisi, co-founders, Founding Fuel.

A summary of the conversation

Edited for brevity and clarity

Highlights from the EY report

“Every publisher went online and put a dotcom at the end of their brand name. But did it really mean success?”  

~Ashish Pherwani

The report is based on perspectives from more than 120 CEOs

There’s a variance in advertising outlook.

  • Some said advertising fell 3% on the digital side; another large agency group said, digital advertising grew 15%
  • 2020 is a wrong year to base your trends on. However, some long- and short-term trends do appear

Is there an opportunity to build a digital newspaper at scale, with a subscriber base of 1 billion over the next five to seven years?

  • There are just about two or three digital publishers crossing the Rs 100 crore a year mark.
  • They need a lot more innovation in what they can do online differently from what they are doing in the physical newspaper world.
  • Some of the foreign publishers like The New York Times or Axel Springer, are creating a set of very cohesive communities, which are monetizable.

The EY Report projects a growth of 11% CAGR in advertising in print. Is it a realistic optimism?

“Sometime in July 2020, [EY] said that 30% of people who consume newspapers / magazines, will consume less of that.”

~Suprio Guha Thakurta

  • 11% is a three-year CAGR. And 2020 was a really off-the-charts year.
  • In 2021, provided there are no more lockdowns, EY had projected that advertising footprint would grow by more than 20%. And then 4-5% going forward.
  • [Print] advertising will grow—because of what’s happening with television.
    • Television lost a couple of million households, because the top-end customers moved out and went into SVOD (subscription video on demand) in the last couple of years.
    • If that top-end customer is not going to be served ads on television, he's going to probably get ads on OTT platforms (over-the-top media service offered directly to viewers via the internet). On OTT platforms, you have YouTube, you have Hotstar with its cricket, and Sony with cricket—pretty much everything else is SVOD, and there is no scope for advertising. Therefore, the importance of print goes up to get the top-end customer.
  • On the vernacular side, there are still several markets where print is not yet well established.
    • The word on the street is that vernacular subscription has crossed 88 - 90% for several languages today. It's bounced back very well.
    • Many of the CEOs said they will hit their pre-Covid circulation by the end of this year in vernacular newspapers. Even if we discount that a bit and say they'll get back to 95%, that's a huge recovery.

“The assumption here is that the SVOD guys are really the premium guys that everybody wants to get to and they will continue to read print newspapers.”

~Ashish Pherwani

We need to look at consumption from the consumer lens rather than the industry lens

  • Consumption patterns have completely shifted.
  • Industry will take time to shrink and some of them will take time to grow and the numbers will reflect over a period of time.
  • There is a lag effect that will play out on the traditional media sector. And that lag effect has now got accelerated.
  • India is the only place in the world where all sectors of the media—radio, TV, satellite TV, OTT, newspapers, vernacular, online—grew at the same time. That one-and-a-half-decade-long cycle is now over.
  • If the consumer is on digital platforms, and accessible there, how much money do you really want to fuel into traditional media? That therefore signals TVs decline. Of course, subscription revenues will come in, but they're going to a separate set of players.
  • It's about figuring out where does the consumer want to see that content. And you've got to be in that platform to provide that content to them. We've seen that shift of movement of audiences wanting the same content, but on a different platform.

“There's a fundamental shift in consumer behaviour, which was already underway, which has got accelerated. The numbers will derive from there… The whole market has become a digital market and the impact is going to fall on the entire media business.”

Haresh Chawla

“Every time a new medium comes, media pundits declare the death and demise of the previous platform or medium. The fact is that all of them have survived and coexist. As a broadcaster, it's a coexistence. It's a balancing act. We are in an “and” world, and we all will survive.”

Megha Tata

The industry needs to move from an ad revenue-driven model to subscription

  • Traditional medium (print, radio, outdoor) is largely an advertising revenue-driven business.
  • Digital transactions have increased and people are now willing to pay for consumption. In the new economy, we need to look at people paying for news, entertainment or video.
  • Covid showed us in the last one year, that advertising revenue drops first. But people continue to pay for their services though of course, there was a churn.
  • As an industry we need to develop in a way that people will pay for what they watch or read.
  • There is room for traditional and digital business to coexist. Especially in smaller cities, people do subscribe to their usual medium and will also subscribe to a regional OTT offering in their language.

“Ashish mentioned (in the report) that there was a 3 million drop in certain subscription revenue from the cable side. But largely, that means out of 132 million, 29 million people kept paying for the services. And that is very heartening.”

Anuj Gandhi

News media needs a rethink

  • There's another bloodbath coming. When the dust settles, how many of the players who jumped onto the digital bandwagon will actually be able to survive? Will they have the resources? Because revenues are not coming in right now.
  • The way the category is named—media and entertainment—somewhere news started believe that they're a part of entertainment.
  • The format may change, but legacy news brands that are credible will always survive in whichever format. The New York Times possibly earns more through digital than through the printed copy.

“Let's look at the largest shifts—print was bloated, television was bloated. They've had to rationalize costs. But some of it was long overdue…. And while we've all gone digital, much more than we used to (with reading the news on an app) the fact is that subscription revenues of online media are still tiny. The report says .3 million or .5 million is subscription online news. It's a tiny fraction.”

~Mohit Hira

“Source credibility matters when it comes to news, when it is about your own life. That helped us get some of the newspaper circulation back.”

~Partha Sinha

Is there a future for subscription-only model in India?

  • It will work only if people are completely sold on the content.
  • People subscribe to SVOD and OTT platforms, but cancel subscription if the programming is not good.
  • In a subscription model, you expect the audience to be involved and spend 30 minutes to an hour. Your content has to be worth that time.

“If you need to be fully subscription-based, you need to be absolutely confident of your content.”

~Partha Sinha

“When IPL decided to go behind the paywall, the numbers for Disney+ Hotstar went up… If you look at some of the content from SVOD prayers, it sees a spike for the month that content comes out and then it drops.”

~Anuj Gandhi

Subscriptions and bundling: How the emerging digital news media could be scalable

  • Whether it is The Morning Context, The Ken, or Founding Fuel, how many people will continue to pay for one story a day?
  • All media is eventually going to get put in a digital wrapper, unless it's a live event, or you're going to watch a movie in a theatre. The business model that will emerge will determine the monetization.
  • Bundles will have to emerge, pricing will have to change, we will need ease of consumption and ease of subscription. And create value for the user in that bundle, much like Netflix. Whether you watch for one hour or 100 hours in a month, you are fundamentally hooked on Netflix. Turning it off will be a “cost”, you’ll miss out on something.
  • Digital news has to fight with entertainment and entertainment is an endless ocean.
  • Say, I'm consuming four hours of entertainment a day and one hour of news. Eventually the digital advertiser wants to find me. And he doesn't really care about the environment he needs to find me in.
  • Digital news will not be able to sustain its ‘one story a day’ model. It will be forced down the bundling route. Eventually people will subscribe to a bundle of news and pay for it, and then they will make advertising revenue also. It's virtually impossible to sustain news with just advertising revenue.
  • Bundling is also key to keep your customer acquisition costs down.
  • Comscore (an American media measurement and analytics company) numbers show that Google has a reach of 400 plus million, Facebook has a reach of 400 plus million, and they garner some 70% of the total digital ad pie in India. But the latest entrant are the Flipkarts and Amazons—they’ve been able to garner Rs 3,500 crore (of ad revenue) and take away 12% of the market over the last two-three years.
  • To count on advertising as a key revenue source, you need to be at 200 million plus MAU (monthly active users) before you can even be taken seriously anymore.
  • In 99% of the models today, the customer acquisition cost itself is not recovered by the revenue from ads or subscription, forget content cost. I've seen OTT platforms, where the customer acquisition cost is one-and-a-half times the monthly ARPU that you're planning to charge the guy. So, every customer is actually a negative variable cost for that platform.
  • EY estimates that by 2025 or so more 500 million people will consume content which comes bundled with data.
  • We are seeing the emergence of media brands, which are very media agnostic. This year every media segment whether TV, radio, print, decided that they can't stick to their existing mode of distribution. Radio companies are doing video, text, and events; print companies are doing podcasts and events and video content now.
  • At the core, we're talking escapism and knowledge. The idea is to go find your audience and serve that audience.
  • Demand for escapism and knowledge will never come down. The industry is figuring out how to distribute those two products across multimedia. Those who can achieve scale, whether through bundling or any of the other strategies, will see success.
  • You need to make the OTT and digital business sustainable at the same time. You need to keep the fire burning for the traditional business as well, because that’s the cash cow that is funding the new models.

“If you pull back, even music started as LPs, then cassettes, then CDs, then Napster, then Spotify, and now your Apple Music. Once you enter the digital mode, the underlying business model has to emerge. Market forces will make it emerge… Look at what Netflix did. It created a bundle by taking rights from multiple studios. That bundle became scalable, because it had something for everyone in it. And slowly, Netflix became bigger than the whole industry, and eventually started making more content and all the studios.”

~Haresh Chawla

“You have three or four struggling bands coming together to make a bundle, it suddenly makes a lot of sense.”

~Mohit Hira

“If you think about it, NYT is actually a bundle. It’s a lot of different kinds of offerings put together. You could think about entry points. Someone likes sports, someone likes to read politics, someone likes economics... If you like art, you will pay $10 for a very high quality art newspaper, but not for sports… NYT has made the very calculated risk that everybody will pay a little more for all the other sections. So, you bundle it together for $15… and (sometimes an article on some other subject) interests me—that justifies that extra dollars.”

~Suprio Guha Thakurta

Does news media have a problem of elitism?

  • Very few of the new startups are moving to the multilingual route.
  • There is a huge opportunity in the regional space per se.
  • EY’s estimates show that now about 35-38%, of all content that is consumed on OTT platforms is in regional languages (as compared to a similar number in Hindi, and the balance in English.) On TV this year, 55% of consumption was in regional languages. English was 1%, and Hindi was 44%.
  • Over the next few years, you will see OTT digital content consumption coming pretty close to what television is today, in terms of time spent.

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