It wasn’t too long ago when Indonesia had plenty of over-the-top (OTT) video providers. International streamers such as Netflix, Iflix, Hooq, and Viu as well as local players like Genflix and Vidio, which are subsidiaries of media conglomerates Mega Media and Emtek, respectively, crowded the scene.
But as time went on, some of them have struggled to stay in business. Singapore-based Hooq, backed by major telecommunications firm Singtel, recently filed for liquidation, while Catcha Group’s Iflix has let go of staff and saw its co-founders depart as it faced debt problems.
Amid this uncertainty, GoPlay, the video-streaming arm of homegrown unicorn Gojek, has scored a win. It has secured its first external investment in a round led by ZWC Partners and Golden Gate Ventures, with Openspace Ventures, Ideosource Entertainment, and Redbadge Pacific participating. An investor tells Tech in Asia that the funding is “in the ballpark of US$15 million.”
Launched in September 2019, GoPlay believes its trump card is in being laser-focused on working with the Indonesian film industry to create content that locals want. And while people often liken it to Netflix, that isn’t the best comparison, people close to the company tell Tech in Asia.
Instead of forking out huge sums of money upfront for content, which is how the entertainment industry and players like Netflix largely works, GoPlay is opting for an approach that it believes is more financially sustainable.
It’s using “a revenue-sharing model with content creators and production houses, for both GoPlay original movies and other local content, which helps filmmakers increase quality and benefits everyone in the ecosystem,” explains Edy Sulistyo, the company’s chief executive.
Hian Goh, co-founder and general partner at Openspace Ventures, echoes this view. Other players failed because they didn’t focus on providing quality original content for the Indonesian audience, says the investor, who built and eventually sold the Asian Food Channel in 2013.
Investors see parallels between China and Indonesia. “When iQiyi started in China [in 2010], the country’s gross domestic product (GDP) per capita and internet penetration were similar to Indonesia’s in 2019,” says Patrick Cheung, founder and managing partner of ZWC Partners.
* Forecasted based on ratio between China’s GDP per capita and entertainment and media spend per capita in 2019.
GoPlay was born from Gojek’s ambition to build a super app. Today, GoPlay users can pay the subscription fee via GoPay or buy a bundle package with discounts for other Gojek’s services, like GoFood and GoSend.
In this manner, GoPlay seems more similar to Amazon Prime’s offering in India rather than Netflix.
Gojek is trying to create a “complete ecosystem to get people’s money,” says Thomas Barker, an associate professor at the University of Nottingham’s Malaysia campus. “You order your transport, your food, and your entertainment.” GoPlay can certainly tap into its parent firm’s ecosystem to lower user acquisition costs, a luxury that Netflix or iQiyi didn’t have.
Taking a page from Spotify
To survive, GoPlay is avoiding the trap that has taken down Hooq and other similar platforms. By focusing exclusively on Indonesian content, GoPlay will likely stay in its home country for some time.
While GoPlay’s competitors are also commissioning Indonesian content, ZWC Partners’ Cheung isn’t worried. “How much resources will they be spending on Indonesia?” he asks.
Also, don’t expect GoPlay to splurge on content the way Netflix does. The US streaming giant is famous for its bullish approach: It spent US$15.3 billion on content acquisition in 2019 and is projected to spend additional US$17.3 billion in 2020. However, much of this activity is funded by debt.
GoPlay prefers a more measured strategy, and it’s “pursuing a more new media approach to revenue-sharing like Spotify,” Openspace Ventures’ Goh says. Neither is it planning to hire expensive executives and consultants like Hooq did, he adds.
But revenue-sharing certainly has downsides. Spotify, for example, faces pressure from influential music labels that keep asking for larger and larger portions of the revenue. That’s why the music streamer is ramping up the production of original podcasts, far away from the territory of these industry heavyweights.
GoPlay, however, doesn’t need to contend with powerful music executives and act as a middleman. Instead, it’s working with local production houses and involved in the creative process.
In the past, GoPlay acquired licenses to adapt well-known foreign shows like South Korean crime serial Tunnel and US teen drama Gossip Girl for Indonesian audiences. The move enabled GoPlay to piggyback on the popularity of the original titles and reduce the time for script development, according to an executive from a competing company. This seems to have worked in GoPlay’s favor, as the localized version of Gossip Girl contributed to 25% of total views on the platform.
However, because GoPlay wants to invest in quality, each episode of that show costs 600 million rupiahs (US$43,000) on average to produce, the source says. Assuming that the production costs for its new family-focused series Saiyo Sakato is similar, then GoPlay has to shell out around US$1.5 million for those three programs. According to the executive, the licensing fee for an adaptation is “small” compared to production costs.
Source: Nikkei Asian Review
GoPlay says that costs vary, depending on the production company as well as the genre and story requirements of the series.
According to Goh, US$43,000 per episode is an average budget for a well-made series that doesn’t include A-list actors or special effects. However, he also stressed that there’s no standard budget for content, and a high amount doesn’t guarantee quality. “I’ve seen people spend US$150,000 on terrible content, and US$20,000 on amazing content.”
On top of that, GoPlay also doesn’t have to shoulder 100% of expenses as it can co-produce content and split costs with other parties.
Ultimately, GoPlay’s approach is novel, but its sustainability remains to be proven. While ZWC’s Cheung cites iQiyi as a positive example, the publicly listed Chinese platform has yet to turn a profit despite also running revenue-sharing schemes with content producers.
According to its financial statement, iQiyi been running at an operating loss since 2015 at least, and its cost of revenue – which covers bandwidth and content production costs – have consistently outstripped revenue.
Simplified P/L table for iQiyi from 2015 to 2019
Source: iQiyi’s financial report
On the other hand, Netflix’s debt-fueled approach has been efficient. It has yielded stronger bottom lines and fatter operating margins year after year. Of course, despite this, Netflix’s cash-burning strategy isn’t practical for most companies to copy, unless they have the financial muscle of Disney or Apple.
Simplified P/L table for Netflix from 2015 to 2019
Source: Netflix’s financial report
It’s looking like GoPlay could be operating at a loss for a few years. But by leveraging Gojek, there’s a chance that it won’t have to burn as much as other players do to hit the same milestones.
Are customers responding?
GoPlay declined to share the number of its monthly active users but said that its registered users number in the hundred of thousands. Its users have grown 13x in recent months, though it’s unclear how much of it can be attributed to people staying at home during the Covid-19 pandemic or a 50% price drop in monthly fees last March, going from 89,000 rupiahs (US$6.40) to 45,000 rupiahs (US$3.20).
The main stumbling block for video-streaming companies in Southeast Asia is the lack of disposable income among users, according to consulting firm Fitch Solutions. The abundance of low-cost local competitors is another problem.
Comparison between OTT players in Indonesia
GoPlay’s rating in Google Play has been poor, with most of the complaints citing difficulties in logging in and app crashes. CEO Sulistyo says he is taking the feedback seriously, and the GoPlay team continues to improve the app.
Another hurdle for GoPlay is that Indonesians, like people in many other countries, seem to favor foreign movies over local ones – a preference that adds to Netflix’s appeal.
Number of people who watch movies in Indonesian cinemas
Sulistyo is aware of this situation and says that it’s the local film industry and GoPlay’s “homework” GoPlay, to change the status quo.
ZWC Partners’s Cheung admits that the most sought-after content in every country tend to be foreign ones. However, conditions will change once local platforms start producing high-quality content, he says.
In China, homegrown shows gained eyeballs when platforms like Youko got involved in the creative process, Cheung notes. “There are people who will still consume international content on Netflix, but the local market is still huge.”
He also believes that it’s more of a supply problem than a demand one. In Japan and South Korea, the ratio between local and foreign content is much higher compared to Indonesia.
Ratio of local and foreign movies in a country
Source: ZWC Partners’ research
Cheung also points out that China’s entertainment scene has surged in popularity because it’s always trying new business models, like live broadcasting.
That said, while he’ll help Sulistyo by sharing lessons from China, ultimately it’s up to the GoPlay boss and team to figure out what works best in Indonesia.
In terms of content, Cheung thinks GoPlay may diversify further away from what can be typically found on Netflix. Live concerts could be a possibility, stemming from Sulistyo’s experience in that field, he predicts.
Currency converted from Indonesian rupiah and Chinese yuan to US dollar: US$1 = 14,111 rupiah; US$1 = 7.07 yuan.