Content is king as telcos struggle
Reliance Jio is edging past incumbents with partnerships and focus on exclusive content
The battle for market share between older telecom operators Bharti Airtel, Idea Cellular, and Vodafone, and Reliance Jio is increasingly shifting towards giving content-driven offers. The older operators, which are struggling to stand their ground, given pricing pressures and regulatory headwinds, are now faced with a content-driven marketplace where the scales are tilting towards Reliance Jio.
Analysts led by Srinivas Rao of Deutsche Bank say that content is the new competitive lever for telecom firms. “Content bundling, besides price, was one of the key differentiators during the launch of Jio’s 4G feature phone or Jiophone. Unlike Airtel, Jio has ownership of its movie library and investment in TV and digital content,” analysts add. Among key assets, Reliance Industries (RIL), Reliance Jio’s parent, owns Network 18 — the media and entertainment group of companies.
Apart from helping telecom companies retain/grow their market share in mobile services, content is a big opportunity. Analysts estimate its potential at nearly ~2 trillion, and given the state of financials, it can help players who are able to corner a larger share of this opportunity to boost their revenues and profits.
Reliance Jio, which launched its services in September 2016 (commercial launch in FY18), has notched up a 14 per cent subscriber market share. Recently, RIL picked up a 5 per cent stake in Eros International and also entered into a partnership with Eros International Media to co-produce and consolidate content. The company has an investment in Viacom 18 and a 25 per cent stake in Balaji Telefilms, which will allow its users to access original content through its apps such as JioCinema, JioTV, and JioMusic.
Airtel, too, is beefing up its content offer and announced partnership with Hotstar and Amazon to bundle the latter’s Prime membership with its postpaid plans. The company is offering free access to Airtel TV, which includes content of HOOQ and Sony LIV to all its subscribers up to June. Airtel has an investment in music-streaming service called Wynk and Juggernaut Books. Similarly, Vodafone is offering content on its platform Vodafone Play app and also has a tie-up with Netflix for its premium customers. Idea Cellular, which arrived late into this content slugfest, has tie-ups with Hungama Digital and Eros and is using its apps Idea Music and Idea Movies to distribute content.
While its competitors have entered into content-sharing relationship with various companies, Reliance Jio is going a step further and creating content through partnerships and ownership of content creators. And this can provide it an edge in the business, where differentiating one’s services/offerings is becoming crucial.
Vivekanand Subbaraman and Deep Shah of Ambit Capital say, “Unlike the current approach of content partnerships, we believe that a zero-rated access strategy (exclusive content on certain apps without deducting data pack limits) could help Jio meaningfully differentiate itself from incumbents and attract high value postpaid subscribers.” There are 51 million high-value postpaid subscribers, which account for 5 per cent of the user base but 20 per cent of sector revenues. The other issue for telcos is monetisation of content, which currently is free. Further, given that the regulator frowns on exclusive content deals and those that limit customer choice , telcos will have to look at ways such as the subscription model to pay for costs. However, analysts say that with both the incumbents and Reliance Jio focused on subscriber market share and content bundling being a key differentiator, it is unlikely that they will charge for content any time soon.
While the jury is out on this as these are early days, analysts at UBS said digital content monetisation for Reliance Jio could start in FY19 with digital subscribers and revenues expected to double over the next five years. They estimate Jio’s digital content revenue at ~23 billion in FY19, rising to ~70 billion in FY23. In such a scenario, incumbents, too, should stand to gain. Notably, the willingness of customers to pay for content has also been increasing and all this spells good news for the telecom industry.
For now, given the intensive pressure in mobile services, most analysts are cautious on telecom stocks.