It has been about 10 years since the emergence of Mobile VAS companies in India. February 2002 was when Indiatimes8888 started the trend, and multiple publications and media houses followed. The key issues then were related to the oblique dynamics involving the carrier. In a purely text based activity, the carrier, the gateway provider and either the aggregator or the content owner formed the value chain. In a voice based service, the gateway provider was replaced by the platform provider.
It was with the advent of music that the revenues started booming, but at the same time, there was a change in the balance of the ecosystem: Despite the attractive toplines, I suspect that there was very little attention paid to players in the bottom lines of the ecosystem. A higher topline does not ensure a good bottomline, even though there are apps with a limited topline which are running with a 30% bottomline too.
If one were to compare, the lowest bottomlines are with the aggregators, followed by platform providers and then the Content Providers. However, maximum companies are in the aggregator category. To hazard a guess, the carrier topline would be close to 40-45% of End User Price(EUP), and about 40% of that may go to the bottomline; for a platform provider, it really is a question of how his accounting works, in terms of depreciation of assets. My guess is that they would recover the money in less than 6 months with today’s volumes. This is possibly the reason why their revenue share is being squeezed by the carriers.
Out of the 25-30% of EUP that labels get as digital copyright, 60-70% go to their bottomline, especially when there is hardly any spend, and again it is a question of how the costs are allocated towards digital platforms. For an aggregator, his topline is about 30-35% net of End User Price, and he has a royalty payout of 25-30% per piece, thus leaving him with 5% on music and maybe 10% on imagery.
There are two ways that aggregators can manage their situation: reduce risk by getting a revenue share deal which is possible with low-end labels religious titles. If deals are MG driven then it is a struggle and gets down to how accounting is done: some apportion (amortize) the acquisition costs entirely in the first year, while others would do it through the term of the contract: 60% in year one, 20% in year two, maybe 10 and 10 in year three and year four.
Huge upfront acquisition costs (minimum guarantees) and wafer thin margins have ensured profitability does not grow in these segments. The platform players saw their margins decline from close to 25% in 2002 to 8 % and even lesser today, with many entrants and other existing players upgrading to become platform service providers.
Even in the gaming space – if anyone can claim the real existence of one in India – the situation has come to be one of aggregation, with worthy original locally developed titles being minor. There is every possibility that these players too will move to a platform play to survive in future, if they already have not done by now.
If we compare a profit pool of 2002, 2005-6 to 2011 one can clearly see that it is increasingly becoming difficult to be an aggregator. While we have witnessed the dual roles performed by platform players as aggregators or Content Providers, my guess is we will witness more of these in the coming future. The Content Providers (and specifically music labels) will be either directly deploying their content, or will acquire aggregators, possibly those who have been major partners primarily for their logistics and distribution strengths. While this kind of a consolidation could be welcomed, those aggregators who have not figured which way to progress – the tech route or the IP route – will possibly face a shutdown. 2011/12 will be an interesting year for the mobile VAS segment in India.
Like the assemblers and box pushers in the PC market, whose value addition is practically zero today, the role of an aggregator has gotten marginalized as time progressed.
The situation is not very dissimilar, if one were to consider profit pools within product categories. The ability to constantly evaluate where your bottom line comes from and strategize to create a mix that is advantageous to the player is critical. Content Providers are riding the Minimum Guarantee wave and sitting in a safe house, but they will benefit only as long as the aggregator space will exist gainfully.
In a domain which has come to exist and grow for 10 years there is bound to be disintegration and consolidation. How to remain stable after the shake-up is critical. There is no dearth of resources in creating newer products and services, and there are plenty of opportunities to be original with your services: create and retain IP.
T N Prabhu (blog) has been a part of the mVAS domain since 2001, and is an avid observer of the domain for the past two years. He has served his professional life across various media houses like The Hindu, Cyber Media India Ltd, Times Internet, The Walt Disney Company, Rediff, and in several senior positions including UTV where he was the CEO of UTV New Media. His notable contributions to the mVAS domain include Indiatimes 8888, the establishment of Disney’s digital initiatives, AudioCinema and the single code CRBT. Prabhu is currently involved in the field of renewable energy and knowledge management solutions through his entrepreneurial entities. He can be reached at firstname.lastname@example.org.
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