India's short-form video market earns $100M in ads; Tier-2+ regions lead the surge

India's short-form video (SFV) landscape has undergone a remarkable transformation, evolving from a mere entertainment platform to a robust economic powerhouse, according to a new report from Redseer Strategy Consultants.

The "India SFV in 2024: From 'Likes' to Monetizing Millions" study reveals the sector's unprecedented growth since the exit of TikTok from the Indian market in 2020, with daily active users increasing by 3.6 times. India’s SFV market now engages close to 250 million monthly users.

Speaking to afaqs!, Mukesh Kumar, associate partner at Redseer Strategy Consultants, sheds light on the dramatic shift in how Indians consume and interact with short-form video content.

Short-form video, once an emerging format in 2018, has now become a mainstream medium, says Kumar, as he highlights the rise of platforms like Instagram, YouTube Shorts, and homegrown alternatives such as Josh and Moj.

The report's findings paint a picture of a maturing market where content consumption patterns have evolved beyond mere entertainment. Today, these platforms serve as vital discovery engines where users explore products, track fashion trends, discover new music, and even source movie recommendations.

This transformation has created a unique dual ecosystem where global giants coexist with Indian platforms that cater specifically to regional preferences and cultural nuances.

Monetisation

Perhaps the most significant revelation from the report is the high monetisation potential of the SFV audience. According to Kumar, two-thirds of users are considered highly monetisable, actively engaging in online transactions, e-commerce, UPI payments, and even stock investments.

"Over 50% of these users come from middle- to high-income groups, making them particularly attractive to advertisers," he notes.

However, the advertising landscape still shows room for substantial growth. While SFV platforms have witnessed a 45% year-on-year increase in advertising spend, moving from less than 1% of total digital advertising spend in FY23 to 1-1.5% in FY24, there remains a significant disparity between user engagement and advertising revenue.

Despite users spending 15-20% of their online time on these platforms, the advertising revenue share remains disproportionately low.

Kumar attributes this gap to the nascent state of advertising products on these platforms.

"Advertisers today are looking for tangible outcomes like web traffic or app installs, but most ad spend on SFV platforms still goes toward branding campaigns rather than performance-driven initiatives," he explains.

Tier-2+ cities and small towns lead the charge

The report highlights the increasing importance of tier-two cities in driving platform engagement. As per the report, over 63% of SFV engagement comes from Tier-2+ regions.

These emerging markets represent the next wave of growth, with audiences demonstrating significant discretionary spending potential. Indian platforms have capitalised on this opportunity by delivering content that resonates with regional tastes, languages, and cultural preferences.

A notable strength of Indian SFV platforms is their positive user sentiment, which Kumar attributes to several factors.

These include superior cultural relevance through regional language content, significant improvements in app interfaces over the past 12-18 months, and enhanced creator engagement features, such as live streaming.

Influencers emerge as crucial players in the SFV ecosystem, with platforms supporting multiple revenue streams.

These include influencer marketing campaigns through creator marketplaces, live streaming with tipping features, and video commerce initiatives. The report reveals that 4% of users currently tip influencers, with an average monthly tip amount of Rs 100.

While video commerce shows promise, it remains in its early stages in India. Kumar notes that while markets like China derive 20% of their e-commerce GMV (gross merchandise value) from live shopping, India's contribution stands at less than 1-2%.

"For video commerce to grow, platforms need to invest in creating a seamless ecosystem, including better backend integration with logistics, user incentives, and effective influencer utilisation," he suggests.

Tech driving SFV

On the technological front, platforms are actively exploring various innovations to enhance user experience and content delivery. These include AI-driven personalisation, advanced content moderation systems, improved user segmentation for targeted advertising, and the potential applications of generative AI for content tagging and creation.

The report also addresses content moderation concerns, noting that Indian SFV platforms maintain a lower share of inflammatory content compared to their global counterparts. AI systems support a combination of user reporting mechanisms and manual moderation to achieve this.

Looking ahead, the Indian SFV market appears poised for continued growth and evolution. With platforms actively working to bridge the monetisation gap, improve technological capabilities, and enhance user experience, the sector is likely to play an increasingly significant role in India's digital economy.

The transformation of SFV platforms from simple entertainment channels to sophisticated marketing and commerce platforms represents a significant shift in India's digital landscape.

As these platforms continue to mature and develop more sophisticated monetisation tools, they are likely to capture an increasingly larger share of India's digital advertising spend while providing new opportunities for creators, brands, and users alike.