Can World Cup 2023 save Disney+Hotstar?

Have you been following the World Cup?

That’s probably not a question you would ask an Indian.

Sorry, my bad!

Of course, you have been following it religiously. Maybe, you procrastinated working on that presentation your manager gave you to enjoy the match.

You die-hard cricket lovers might have noticed that Disney+Hotstar, which made you subscribe for all those IPL matches and kept them behind the paywall, is now streaming the World Cup for free.

Why, you ask?

No, it isn’t a noble gesture because we are a cricket-loving country.

The thing is, Disney+Hotstar is on its deathbed.

If the rumors on Wall Street are to be believed, Hotstar’s parent company, Walt Disney Co., is considering a sale or joint venture (JV) for its Indian television and streaming business.

And guess who is bidding? None other than your favorite Gujju industrialist, Adani.

Preliminary discussions are underway, involving billionaire Gautam Adani and Sun TV’s Kalanithi Maran, for its India streaming and television business.

But, why on earth does Disney want to sell its India business?

Before that, let’s have a look at its journey.

The rise and fall of Disney

Hotstar was an undisputed king in the OTT industry, boasting close to 40% market share in the Indian OTT industry with nearly 50 million subscribers. It was way ahead of its rivals Amazon and Netflix, which had 20 million and 7 million subscribers respectively.

Back in 2015, many entertainment companies like Viacom18, Times Internet, and Eros tried to persuade Indian audiences to pay for online content, but their efforts fell flat. People just weren't interested.

But then, Hotstar, a lesser-known Indian streaming service, changed the game. They started streaming Cricket World Cup matches for free, and suddenly, everything clicked. In just one month, Hotstar soared to incredible heights, boasting 10 million downloads and 25 million views, becoming one of the fastest-growing online streaming services worldwide.

The strategy was simple:

Give the price-sensitive Indian audience content for free and make money from advertisements.

With generous amounts of free mobile data, young Indians enthusiastically embraced everything Hotstar offered: cricket, kabaddi, soap operas, Bollywood movies, American sitcoms, and more.

By 2016-2017, when Netflix and Amazon Prime Video were just getting started in India, Hotstar had already left them miles behind in the race.

In 2019, Disney acquired Hotstar as part of its deal with 21st Century Fox. By that time, Hotstar had raced ahead with over 300 million monthly active users (MAUs).

At that time, Uday Shankar, the man who built India’s largest TV network, Star, was leading Hotstar and probably understood that advertisement-driven streaming was the way to crack the price-sensitive Indian market.

In 2019, he revealed that Hotstar was responsible for 40% of all the long-form digital content that people consumed in India. What's even more astonishing is that Hotstar was ahead of YouTube India, which had 265 million MAUs at the time. This showed just how popular and influential Hotstar had become in the Indian digital entertainment landscape.

But after Disney acquired Hotstar, things changed entirely. Disney took the reins and made some big changes at Hotstar, all in an effort to keep Wall Street happy.

They changed gears and shifted the company’s focus to subscriptions.

They decided to put cricket content behind a paywall, meaning you had to pay to watch your favorite matches.

Disney’s lack of understanding of the Indian market and tighter controls induced leadership issues in the company, resulting in Uday Shankar leaving the company in December 2020.

But he wasn’t planning to retire and play golf; he joined hands with Mukesh Ambani and invested in Viacom18, the company that owns Jio Cinema.

After he left, a slew of exits followed, including Chief Executive Sunil Rayan, Chief Technology Officer Akash Saxena, Head of Original Content Nikhil Madhok, and Vice President of Product Engineering Nikhil Soman.

A leadership struggle brewed at Disney.

Amidst that came the crucial time for the company to renew the IPL rights. When bidding for IPL rights, Disney Star chose to go all-in for the tournament's television rights rather than focusing on the digital rights.

Even though Hotstar offered a vast library of original shows and soap operas, cricket was the real superstar on the platform, making up a massive 60-70% of its viewership.

Among cricket events, the Indian Premier League (IPL) stood out as the crown jewel. It not only brought in a ton of new viewers but also filled Hotstar's coffers.

From 2015, when Hotstar first began streaming the IPL, to 2022, the final year of IPL on the platform, the league's viewership saw an astonishing surge, going from a modest 41 million viewers to an incredible 400 million and more.

With Uday Shankar, Mukesh Ambani snatched the IPL rights away with a staggering $2.9 billion bid and started streaming the games for free.

This move led to Disney losing subscribers rapidly. In October 2022, they had 61 million users, but by July 2023, around 21 million had left.

Not only did they lose followers, but the company’s decision to choose TV over digital streaming lost them millions. In a surprising twist, RIL's earnings for the quarter ending on June 30th showed that the IPL's digital earnings had outshone those from television. According to a media report, the earnings were estimated to be between Rs 1,800 crore ($216 million) - Rs 2,300 crore ($276 million). Meanwhile, Star's TV revenue stayed at Rs 1,800 crore ($216 million).

So, does this mean Disney’s stance of focusing on subscriptions doomed it?

Not really, even though Hotstar boasted 50 million subscribers, it did not really add any real cash to Disney’s bottom line. You see, in the OTT industry, a company has to churn out a lot of money every now and then to produce or acquire new content to keep the subscriber hooked.

You gotta bring in a lot of ad revenue to keep up with the costs. And that wasn’t really happening with Hotstar.

The team at Star had poured a staggering ?40,000 crores over the last ten years to secure the media rights for broadcasting cricket on TV and their OTT platform, Hotstar. Unfortunately, the advertising revenue just couldn't make up for these massive expenses.

Disney's streaming operations in India, which boasted the highest number of users worldwide last year, reported a loss of $41.5 million despite generating $390 million in revenue for the year ending in March 2022, according to their most recent financial statement.

Even the huge subscriber base of Hotstar doesn’t show the real picture, with the average revenue per user, the money it makes on each user, being just about $0.60.

Now, if we compare this to the ARPU of Disney's global streaming platform, Disney+, but without including India, it's a much healthier $7.

In fact, Hotstar doesn't make a big dent in Disney's overall earnings. It brings in just 5% of the revenue pie.

You see, a lot of subscriptions are sold as bundled packages with telecom companies, which in turn reduce the ARPU.?

"We were bullish on Indian subscriber’s propensity to pay. That has not worked out," said a company executive to Reuters.

Back to the Basics

Following the footsteps of Ambani, Hotstar has decided to stream the World Cup for free. They are back to the advertisement driven model.

The strategy here is to bring in users and boost ad revenue through sports content. They aim to expand the pool of advertisers, add more Hotstar Specials shows, keep their strong regional content presence, and slowly turn their loyal viewers into paid subscribers.?

They'll stream live matches of the Asia Cup and the World Cup for free to the 600 million smartphone users in cricket-loving India.?

This "hybrid model" aims to boost advertising revenues by increasing smartphone viewership while targeting new subscribers for the paid Hotstar TV app, which will still have cricket under paid plans.

Disney is confident that this strategy will help them grow their user base in the coming years. They plan to achieve a new record of 50 million concurrent viewers during the World Cup, double what they had in 2019.

But there's no guarantee of success, as the advertising revenue might take time to catch up with the huge investments made in securing streaming rights. India's vast user base narrows down when it comes to paying for content, and the average revenue per user (ARPU) in India is much lower than in the United States.

So, what do you think with the new hybrid plan, can Hotstar rescue itself from being swept into the arms of a new owner? What's your take on this?