Eros Plc CEO Jyoti Deshpande is bullish on the online video space, having seen the company cross its target of 2 million paying subscribers for its Eros Now service, a quarter earlier than expected. So new targets have been set. Deshpande has now set a conservative target of 5-6 million paying subscribers in fiscal 2018, “which is triple our current base,” and, “It would be a dream come true to revise up that target during the course of next year as we continue to grow the platform.” Last quarter, Eros Now had set a 5-year target of at least 15-20 million subscribers worldwide with a blended annual ARPU of $5 from India and $30 internationally with 80% of the target subscribers from India and the remaining 20% internationally.

According to Eros Now, a paying subscriber is someone who has made a valid payment to subscribe to a service that includes the Eros Now service either as part of a bundle or on a standalone basis, either directly or indirectly through a telecom operator or OEM in any given month be it through a daily, weekly or monthly billing pack, as long as the validity of the pack is, for at least one month.

For growth, Eros is relying on telecom operators for distribution. It is live on Airtel, Jio, Vodafone and Idea, and the company saw “six digit contributions” from Idea Cellular and Vodafone, “within weeks of launch”, with Idea going live only in January 2017.

Eros reported digital and ancillary revenues of $17.22 million for the quarter ended December 2016 (Q3Fy17). This was a decline of 22.5% from $22.2 million in the same quarter. The digital businesses also includes YouTube channel, and more significantly, it’s distribution via cable based VoD services called “Bollywood Hits On Demand” with Cox, Rogers, Cablevision and Time Warner, apart from services in the UK and the Middle East.

Eros’ Telecom operator deals

If there was every any doubt about how the dynamics in the content space have changed (some indication from Jai Maroo here), Eros suggests that content owners are in a better position than where they were during the VAS days: Eros does 5-9 year deals with telecom operators, and most interestingly, “Most of our deals have some kind of minimum guarantee payments, or subscriber guarantee, which give us the confidence that this is a win-win strategy for customer acquisition and brand building.”

The minimum guarantee deals are, as mentioned above, either “in dollar terms or mainly in subscriber number terms with those platforms, and we are still not even scratching a tip of the iceberg in terms of less than 5% penetration of just the existing sub-base of those platforms”…”wherever there are some guarantees, they are broken down per year. And we are currently only reporting actual (subscribers). We are basically going on what is the number of subs as reported as of certain date, and that’s how we’re going buy it. And we touched upon the revenue recognition as well. If we’ve got upfront paid for something for a two-year deal, we will recognize it evenly across the two-year period and not really front end it. Same with subscribers, same logic. We’re not going to front end it.”

More importantly, “So, it’s tying up with (multiple) telcos has made sure that even as subscribers move from telco to telco, it doesn’t impact us at all.” Eros Now has tie-ups with 20 telecom operators globally.

“And we think significant contributions will continue to come from telcos. But in the medium to long run, you may see this whole B2B to C which is through your mobile wallets etc. More consumers being comfortable paying directly. And that will really reflect on the margin in a very positive manner. Currently the ARPUs that we’ve taken are very low. As a reminder, say a $5 ARPU, annual or in India and a $35 annual ARPU outside of India, and we are sort of assuming that Telco will take 30% which is what they’re taking now.

On competition from Amazon Prime Video and Netflix

Eros’ telco deal is a B2B2C (business to business to consumer) strategy, and it sees its approach of going direct to consumer (B2C) and B2B2C as distinct from international players, which have largely taken a B2C approach.

“Most of the other international OTT players still continue to pursue a B2C premium strategy led mainly by western content, although they’re rapidly adding Indian content too, and a television company owned OTT services (Ed: HotStar, Sony LIV, Ditto TV?) predominantly serve as a substitute for catchup TV and continue to drive an adserve-free model”…”I absolutely believe that their efforts will go on to converting more and more people to consuming content via mobile apps, via OTT, and it’s a welcome company that Eros now is in. And that’s what I have to say in terms of Amazon and Netflix. Eros now continues to be a front runner as one of the leading players with Indian content and we will continue to build up the strength that I talked about in my speech.”

Eros believes that “we have an edge there in terms of share of mind with the consumers with our low pricing and our great product. So, we think the market is big enough for several players. Right now English content is so huge, but these players have serious ambition and we continue to hold our own in that context.”

But it’s not all competition. “There is room for multiple players in the market. We see a huge demand for from the Eros as well. Because the dynamics of players entering, wanting to take out the TV vendor for digital, all of these things are great for a owner of 3000+ library with a 7000 8000+ digital library, which is us. And people are willing to pay millions of dollars for just a few films. So, it’s like a bearer check that we have and any time we can cash into that bearers check. Meanwhile, we are building the whole Eros Now subscriber growth.”

Note that Ditto TV also has telecom operator deals, and is currently reworking its digital strategy.

Demonetization Impact

“In November, the Indian PM Narendra Modi had just dropped the demonetization bombshell upon us, and while we knew that no one had turned up to watch the couple of films we had released at the time, it was too early to judge the long-term merits or the demerits of the radical move.”

“Mobile wallets and such other means are getting adopted across the length and breadth of the country by rich and poor alike. Eros is sitting in pole position to take advantage of these new trends with deals in place with Paytm, Mobikwik, SBI Buddy, Freecharge, who collectively aggregate over 260 million ewallets in India.”

We chose to push our fully funded plate into forthcoming quarters, rather than release more films during uncertainty when consumers were distracted with demonetization. While our presales cushioned our fall from the lack of theatrical footfalls during November and December, we offset some of that with strong catalog monetization. We had a lot of pent-up demand from the hold-back in catalog sales from the latter half of last year, as disclosed. ”

“In terms of the film industry, we have had one big release, which is not an Eros release, called Dangal, which went on to break previous records. So it was a Christmas release and people flocked to the Cinemas, and I think it was a runaway success. Having said that the market is still soft in Q4, which is why people are not rushing back to release large movies, and the films that have released haven’t sort of hit it out of the park.”

“…it will take one or two quarters for it to normalize. Having said that people have adapted beautifully – like I said, the mobile wallets are taking over more usage. Information should be out there, but it is not as much in favor of credits cards as it is in favor of ewallets or mobile pay or Mobi-pay. So that is what has taken over India by storm.”