The 4G era: Will it change the game for media firms

The data party just began. Earlier this month, Vodafone launched its 4G service in Kerala. This Sunday, Mukesh Ambani-controlled Reliance Industries launched Lyf, its 4G-enabled phone, and its Jio 4G services - only for employees currently. A full commercial launch is due in end March or early April 2016. Just before Jio, came Idea. Airtel and Aircel have already launched their 4G services.

4G, or LTE as it is called globally, compresses huge amounts of data making it easier to transport it over the airwaves. This means "better speeds and, therefore, more video consumption. And anything that pushes up video consumption is good for us," says Sudhanshu Vats, group CEO, Viacom18 Media.

That is an understatement. 4G, say analysts, is the single biggest game changer in the Rs 100,000-crore market for media and entertainment in India. Largely because it could trigger massive consumption of mobile video, expanding the market for everything - from films and music to newspapers and TV shows. And because it brings the big boys, the telecom and broadband network operators, back into the media game.

"(4G) LTE networks, multi-media smart mobile devices and enhanced application ecosystem will drive higher data consumption among users. Jio is leading this evolution by offering a comprehensive digital experience through an all IP-network, seamless connectivity, rich ecosystem of content driven applications and VoLTE capable multi-media mobile devices," says Sanjay Mashruwala, managing director, Reliance Jio Infocomm. Shorn of jargon this means that Reliance Jio is betting not just on media consumption but an ecosystem with last-mile access, a wireless 4G network, devices and loads of apps.

While healthcare, education and banking are on the cards, media and entertainment will lead the charge. Jio Cinema, Jio Beats (music), Jio Play (TV), Jio News (newspapers) and even Jio Money (a mobile wallet) are among the dozens of things on offer. Jio Play has 160 standard definition TV channels and 40 high definition ones. Every major newspaper, news channel and entertainment company is either on board or is in the process of being signed on. There are also the Network18 channels such as CNBC-TV18, which the Rs 388,494-crore RIL owns, and Colors, MTV et al that it owns through a joint venture with Viacom. Like any other operator, Jio will also offer open access to other entertainment apps or sites you want to go to through its network.

Then there is the Rs 42,352-crore Vodafone India. If you live in Kerala, where it has just launched 4G, you could upgrade to a 4G SIM free of cost and log into an unlimited movie and music subscription and other freebies in packs that range from Rs 29 (120 megabytes) to Rs 2,499 (20 gigabyte).

Finding new screens
At 800 million TV viewers, India is the world's second largest TV market by volume. Yet on a per capita metrics - time spent, ad spend, average revenues per user - it doesn't do as well. One big reason is that India's 160 million TV homes have only one TV because of the belief that TV watching is a family thing. This leaves the field wide open for mobile phones, tablets or any other screen to become the second, third or fourth screen of the family. That explains, in part, why consumption of online video, at 100 million viewers currently, is growing so fast in India.

Over the past two years, as 3G grew, the average consumption of data has grown from just over 200 megabytes per second on 2G to more than 680 megabytes on 3G phones. Vodafone alone saw a jump of 65 per cent in data revenues. Much of this growth is led by video - a bandwidth guzzler. Now add another number - a standard definition film takes anything from 0.3 to 0.7 gigabytes of data and a high definition one up to 1.5. Films or long form video hog too much bandwidth, making their streaming or download clunky and full of interruptions. That is what Hotstar or Sony Liv too report: films and other long form videos are not consumed as much as the short, snacky sports, news or webisodes.

If 4G removes bandwidth and price constraints, then "the upside in this market is huge," says Harit Nagpal, CEO, Tata Sky. Most 4G services are available between Rs 80 and Rs 125 per gigabyte of data. That is roughly the same price as 3G with a lot more goodies, such as voice and free messages, thrown in. Some analysts reckon that as the five networks get into play, data prices could drop to Rs 10 to Rs 50 per gigabyte. This fall will "drive consumption, especially of long form content (film, TV shows)," says Gaurav Gandhi, COO, Viacom18 Digital Ventures.

Not everyone agrees. "Apart from snacking content, I don't see long form content consumption of video going up on wireless. Less than 7 per cent of Netflix's consumption is on wireless. The real consumption will remain wireline and traditional," says Punit Goenka, managing director and CEO, Zee Entertainment Enterprises. "Wherever possible, users prefer to watch on the biggest screen possible. As signal quality goes up, the large screen experience matters more and more," agrees Anurag Dahiya, head (content and advertising sales), Singtel. That is why the operator with a fixed line into the home, Wi-Fi and 4G, could be a big winner, say analysts. And so far only Jio and Airtel are working on that kind of last mile access.

The other difference will be between the connected, electrified India and the not-so-well-connected India. As a group, Vodafone has launched 4G services in 20 countries (including India). "The probability of users upgrading is higher in the metros as they have been already using data. Data, especially in rural India, is restricted to entertainment and information needs. Voice will continue to remain the mainstay," says Sunil Sood, managing director and CEO, Vodafone.

Goenka adds, "The maximum growth for Ditto (Zee's online video brand) has come from rural markets where electricity is an issue." Srini Gopalan, director, consumer business, Bharti Airtel, explains: "In rural Bihar and UP, people put their phone on all night and download (as much as )2GB of data, movies that are then resold to customers because there is no power. As a network developer, this presents an opportunity on the soft underbelly - if we can oragnise this, we can monetise it. A smartphone with better connectivity can kill piracy and give artists more opportunity. More usage will move to legal sources."

Old versus new
However, harnessing this growth, if it happens, needs a telecom industry with a different mind-set. More than five years ago, telecom operators were the big movers in the media market with ringtones and music bringing in profitable slices of revenues. The bets were that they would soon overtake the big players on media revenues. They didn't. Their cussedness on keeping 70-80 per cent of the revenues from content meant that creators looked for and found ways - such as apps and off-deck services - to bypass them. Then WhatsApp and other chat apps took the bottom out of the messaging market and suddenly telcos were left behind. It is in this period that online video consumption started growing, presenting an opportunity that telecommunication companies don't want to miss. "As a player we need collaborative partnerships," is all Gopalan says on the lessons learnt from value-added services.

While he or other network operators refuse to share details of content deals, this is a different market. For one, Google's YouTube has set the context with revenue shares that average 50 per cent. The telecommunication companies' hold over billing - with mobile wallets and cash on delivery - is now over. Then, most of the good content sits with about 10 top media firms in a now consolidated industry. Goenka reckons, "If the content is strong enough, we should get a fair share - 30-40 per cent is reasonable."

Even with those splits, the fact remains that telecommunication companies will cast a big shadow over the media business. By the end of the second quarter of 2015-16, RIL had invested Rs 93,000 crore on Jio. That is more than 10 times the revenues of Star India or the entire Zee Group. On top line, Airtel and Vodafone are between five to ten times the size of the top three media firms in India. RIL is almost four times the size of the entire media and entertainment industry in India.

The challenges
The challenge, however, is not the big versus small players, but the technology itself. "Though there are a few 4G handsets available in the market, the really affordable ones are still limited. Only three per cent of our consumers today have 4G phones. After so many years of 3G, only 28 per cent of our consumers have a 3G-enabled device," says Vodafone's Sood. Currently, just about two to three per cent of India's 970 million phone users have a 4G-enabled handset. It costs between Rs 4,000 and Rs 20,000 and there aren't many in the market currently. But the entry of five large players should change that like it did in other markets. In China, for instance, the introduction of 4G last year has meant that 70 per cent of the handsets sold there now are 4G-enabled.

The lack of price arbitrage between cable and online is the other challenge. In the US, where cable prices range between $50 and $80 a month, Netflix, at $8-12, managed to seriously disrupt the market. "In India, consumers pay Rs 250 for 300 channels on broadcast - including sports, kids and international content. That is the reference. Therefore, we have a challenge in cracking a subscription price point for video on demand in India," says Gandhi.

As video consumption grows, will it eat into traditional media? Across the board, the answer is no. Nagpal points to research that shows that online media consumption in developed counties grew at the cost of traditional media. But in India, where total media consumption is about 37 hours a week, compared to, say, 65 in the US, all new consumption is additive. "4G has not changed substantially what people consume and how. In Singapore, fixed TV viewership went up by 16 per cent last year, linear is absolutely critical. Our base is still TV," emphasises Dahiya.

Many of these questions will be answered when all the five big networks - Jio, Airtel, Vodafone, Aircel and Idea - are up and running for at least two to three years. The game has just begun.

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