Balaji Telefilms is raising Rs 413.28 crores from Reliance Industries. Its board approved a preferential issue of 25.200 million equity shares to RIL, at Rs 164 per share. This is a discount of 15.55% to the current price (at the time of filing this report), 12.1% to yesterday’s closing price of Rs 186.65.

While the investment has come in the parent company (Balaji Telefilms), the announcement focuses heavily on ALTBalaji, a subscription based video on demand service that Balaji launched earlier this year. The stock has been running up (despite fluctuations) since a few weeks before the launch of ALTBalaji, and the sale of stake at Rs 164 per share to RIL is at a 55.74% premium to the Rs 105.3, which was the closing price on the day after ALTBalaji launched (a Sunday, so the price is for Monday). The RIL investment comes a day after Balaji had said that a Bloomberg Quint story suggesting that they’re selling stake to Zee had “no factual basis”, but also pointed out that the board was discussing ‘various investment options’.

Some thoughts on ALTBalaji’s approach

1. ALTBalaji’s is a bold approach to monetizing online streaming: Most video streaming players have historically taken the catalog approach to online video. Give consumers a large library of content, and allow them to pick what they want, for a particular fee. Remember, that just months before ALTBalaji launched, Zee Entertainment CEO & MD Punit Goenka said this of original content:

If you look at content consumption on NetFlix, they produce a few shows which brought them marketing hype, but the actual consumption on NetFlix is for content produced by broadcasters, who create hundreds and thousands of content a year, not just a few series. Orange is a New Black and House of Cards will get them a lot of marketing in terms of marketing hype, but the actual consumption in terms of number of hours still belongs to the traditional creators of content.

Our proposition for ditto [ditto TV, their streaming platform] is only linear on demand, live TV and catch up TV, and nothing beyond that. We will see once the market develops and critical mass is available for us to look at original content for the platform.

Since then, Zee has decided to rework its strategy, and consider doing original content because, as expected, because of Jio, we now have critical mass. But why is ALTBalaji’s approach really bold?

  • Firstly, because they took on the big guys: Netflix and Amazon Prime video, who have both some thousands hours of catalogue content, and do great original content. Both are also producing original Indian content. The gamble that ALTBalaji made was that their original content would have a market: for a service that no one knows, with content that no one has seen before, and no fans existed. Remember that Netflix already had subscribers when they started doing original content online. With this announcement, Balaji says that the investment will allow them to “further speed up content development initiatives, especially for ALT, thereby providing it with a strong ability to compete with other OTT service providers – both global and Indian.”
  • Secondly because they fought perception in the best way possible: ALTBalaji fought the perception that Ekta Kapoor’s shows (often disparagingly referred to as saas-bahu serials) aren’t really for a younger audience, by doing the right kind of content. The choice of shows: a progressive and empowered look at love, relationships and women with DevDD (with a woman Devdas), Romil and Jugal (a gay couple version of Romeo and Juliet) and The Test Case (the first woman test case in a combat role in the Indian Army). I’m waiting for Cybersquad and hoping it isn’t another half-assed-Bollywood-style attempt at showing ‘geeks’. This is pushing at the boundaries, if not pushing the boundaries, but I’m not sure if Ekta Kapoor will ever be able to do a Shameless equivalent on ALTBalaji. Never say never, though.
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  • Lastly because of their approach to making it paid: Netflix gives you a month free to try out all the content they have on offer. ALTBalaji allowed users to watch the first three episodes for free, and then charged for getting access to the rest of the content. Frankly, by the time you’re done watching three episodes, you’re probably hooked. I watched three episodes of DevDD and ended up buying an annual subscription and binge-watching the show. The approach to giving a few episodes free and making the rest paid reminds me of TVF’s approach, where they made some content available for free on YouTube, and the rest on their application TVFPlay.

But has it succeeded? Firstly, we have no way of knowing because they haven’t disclosed subscription data. Lets do some math:
DevDD’s first episode has 2,218,027 views on YouTube, the second has 1,635,909, while the third (oddly enough) has higher than the first two at 2,218,570. There would have been people who watched the show on the app directly as well. Taking only conversion from YouTube into account, here’s an illustration of how it might have played out, but bear in mind that this is not going to be indicative of the actual figures:

Another way of looking at it: 4 million downloads for the app, with a 20% conversion rate for subscription at an average of Rs 100 per subscriber for the year, is around Rs 8 crores in revenues. We don’t have updated figures (and are unlikely to get them), but like we reported in January, Netflix had between 200,000 – 300,000 paying subscribers, though the lowest Netflix subscription is substantially more expensive than an ALTBalaji subscription.

2. The challenge was always going to be consumption: Remember that ALTBalaji doesn’t have the universe of content that NetFlix does, so access to a lot of content is never going to be a reason to subscribe to the service. My sense is that they will remain the second or third platform for many existing video consumption customers. So the focus then has to shift to two aspects: distribution and encouraging consumption.

In terms of distribution, they’ve tried to address the potential reach by making it available across many devices, including even the Amazon Fire Stick, and also ensuring that multiple payment options are available for those who intend to buy the content. But these are now hygiene factors, about being where your potential customers want you. Distribution isn’t consumption and reach doesn’t guarantee viewership: So far, ALTBalaji appears to have largely relied on media coverage from the gaggle of entertainment press, and letting the content speak for itself. What they need, though, is the push that Reliance Jio can bring to them, not from a distribution perspective, but for consumption. They need Jio to push ALTBalaji content to its millions of users, and a continued outreach in terms of social and marketing to ensure that people keep recommending their content. And they need that content catalogue to grow, if they want to compete with the global platforms.

3. ALTBalaji is about owning the content: ALTBalaji could have been just another production house creating original content for a Netflix or an Amazon Prime, but they chose not to do that. The exclusivity, and the scale of how much content is exclusive to ALTBalaji is what is going to drive subscription and retention.

It’s worth remembering that the reason why this service is so important to Balaji Telefilms is that they get to own the content. The catalogue that they create is theirs to monetize for perpetuity. As a production house for channels, they have historically signed off ownership of their content to the channels, which tend to treat the video in the same manner that music labels treat music: as a commodity in a catalogue. All they do is broadcast or stream it, or license it to others to broadcast or stream. They don’t think like studios, where hit shows are seen as a stepping stone to greater monetization, through merchandising, events, cosplay, roadshows, derivative work, etc. I don’t know if ALTBalaji is thinking in this manner, but in the least, this is about a production house getting to do what channels do. Remember that Balaji once had a joint venture with STAR to launch channels focused on the southern Indian markets. That deal went south (heh) quickly, and it took 11 years for STAR to exit.

4. Who else? The question now is about whether any other production house or studio will take the approach that Balaji took: will they also take on the likes of Amazon, YouTube, Netflix, Hotstar, Facebook (?) and the likes, and use their content production chops to drive subscription. STAR has done original content with Hotstar, and Zee is probably going to go down that path as well. As a consumer, we’re in for a treat, because of the diversity of content that will get produced across services. The challenge for service providers will be: how many services will a consumer subscribe to, and if it is two or three, then which will they choose and why? This is the thing about the Internet that people tend to forget: it’s about the content, unlike TV and Newspapers, where distribution is a significant factor as well.