How streaming platforms like Disney+ Hotstar are disrupting the multiplex business

OTT players are paying a fortune for films because of the lack of content on their platforms. This means that when cinema halls open, they may not have enough good films to exhibit.

The Rs 20,700 crore Filmed Entertainment business of India is getting disrupted like never before. One of the largest media conglomerates, Star and Disney India yesterday announced the launch of a new vertical called 'Multiplex' in its streaming service Disney+ Hotstar. The purpose of this new vertical is to make the first-day first show available to viewers at the comfort of their home.

"This is not a short term strategic decision," said Uday Shankar, President the Walt Disney Company Asia Pacific and chairman Star and Disney India. Multiplex is launching with what Shankar defines as, "The most spectacular line up of films."

Yes, they are indeed spectacular, from Sushant Singh Rajput's "Dil Bechara' to Akshay Kumar's 'Laxmmibomb', Alia Bhatt's 'Sadak2', Ajay Devgan's 'Bhuj', Abhishek Bachchan's 'Big Bull' among few others. These movies will unfold one after another on Hotstar 'Multiplex'.

Ajay Devgn, who apart from being an actor and producer has also invested in a multiplex chain NY Cinemas. While speaking at the virtual press launch of Disney+ Hotstar Multiplex, yesterday, Devgn said this trend of movies releasing on OTT before theatres do not worry him. "I think more films will get made now and we will have more releases in the country. This is a good move," said Devgn who has earmarked Rs 600 crore to infuse in his multiplex business in the next five years.

This is not the first time direct to OTT launches are happening in India. From Ronnie Screwvala's RSVP to Saregama's Yoodlee, there are several production houses in India that are commissioning films to independent or mainstream producers and then monetising it by selling rights to the streaming platforms like Netflix, Amazon Prime, Disney+ Hotstar, ZEE5. By releasing films straight to the streaming platforms, the producers save themselves from unviable marketing, promotion and distribution costs, unavailability of distributors/skepticism on the recovery of distribution costs... In 2019, EY estimates that more than 50 films in multiple languages were first released on OTT platforms. 'Chopstick', House Arrest, Soni, to name a few.

However, no one ever imagined that such high ticket movies will first land on streaming platforms. It makes sense, says Jehil Thakkar, partner, Deloitte India. "It will grow the overall business and especially when there is no certainty as to when the cinemas will open again it makes sense to have OTT releases," he says.

Ashish Pherwani, EY India Media & Entertainment Leader, echoes Thakkar's views. "Only a vaccine can really help, and its rollout timelines are not known. Post that, too, fear may remain for a while. Hence, in such uncertainty, home-based entertainment options currently provide an area for growth and monetizing content investments already made. There is a possibility some film genres (non-spectaculars) may move into digital-only mode, depending on budgets and pricing, but for some genres a theatrical experience is critical, and hopefully, those will revive soon!"

While the multiplex chains - Inox, PVR, and others publically expressed their disappointment when producer decided to release 'Gulabo Sitabo' on Amazon Prime, they have refused to comment on Star and Disney India's recent onslaught which Karan Taurani, vice president (Research Analyst) media and consumer discretionary, Elara Capital feels is just a "temporary move."

He says the streaming platforms are making this decision to compensate for the lack of available content. Hotstar, in the months of April and May rake in more than 300 million monthly active users on the back of IPL which did not take place this year. The most consumed entertainment show last year on Hotstar was 'Bigg Boss Tamil' which explains the importance of catch up TV content something also on a hiatus.

If sources are to be believed then the streaming platforms are paying up to double of what they usually do to acquire the digital rights of a film. "Normally it's 40 to 50 per cent of the production cost, now it has multiplied two times," says the expert. With that, the producers are just covering the cost but yet they see this as a valuable deal because there is a significant cost involved to keep a movie pending release.

Taurani is of the opinion that big films releasing on OTT platforms are an alarming sign for the cinemas. "It is not just calendar year 2020, but 2021 is at risk too. There is a chance that the Filmed Entertainment industry will run short of movies to release on theatres once the cinemas are allowed to open. The movies that are ready are getting released on OTT and the ones that were planned are not able to shoot because it is impossible to shoot films following the current standard operating procedures," he asserts.

At stake is a lot. The domestic ticket collection in 2019 was Rs 11,522 crore while the digital's contribution was Rs 1,900 crore and even if it doubles it won't compensate for half the losses. Uday Shankar believes this disruption is exactly how TV came in and started telecasting films. The multiplexes were worried back then too, "but it only grew the overall business," he says. Adding, "In India it won't be a either or or situation."

Despite the over 100 per cent growth in OTT subscription revenues, 20 per cent growth in broadband subscribers and over 4 million connected smart television sets, 2019 witnessed the best-ever revenues and footfalls in theatres which substantiates Shankar's argument.

It is not only the cinema business that makes money from films, there are hundreds of movies channels operating in India. Will these OTT releases put a challenge for the TV channels? "Not if the streaming platforms are releasing films under the paywall," says Thakkar. Adding, " We all know the number of paid subscribers in India is low and therefore it does not impact the television business at all."

EY in its report stated that rights values of new movies increased as broadcasters required them to build subscription revenues in the post NTO television era. In 2020, the satellite rights were estimated to contribute Rs 2,320 crore to the filmed entertainment industry in India.

Overall, it is clear that the producers do not want to incur more cost keeping the movies pending for release but the more they go on OTT platforms the higher the risk for single screens to start with and then could even force the chains with deeper pockets to shut units.