Video streaming in Asia is not for the faint of heart

Asia’s video-streaming startups are finding just how tough the going can be as they contend with the steep costs of producing content for consumers who are price conscious and spoiled for choice.

The latest player tripped up by the fierce competition is Singtel-backed Hooq, which filed for liquidation last month. A joint venture that also involves Sony Pictures Television and Warner Bros. Entertainment, Hooq wasn’t able to provide sustainable returns nor cover escalating content and operating costs amid structural changes in the over-the-top (OTT) video scene, a company spokesperson tells Tech in Asia.

The high costs of content likely dragged down Hooq’s financials, according to analysts at Fitch Solutions. “Streaming players will need to justify greater content investments with the ability to drive higher-value subscription growth,” they say.

All figures in millions of US dollars
Source: Hooq, ACRA

Hooq’s average revenue per user would be just US$0.11 (S$0.15) in the quarter that ended in March of last year, estimates Fitch Solutions.

In May 2019, Singtel announced Hooq’s revenue doubled for the financial year that ended in March 2019 from a year earlier. By June, the Singaporean telecommunications giant said it was looking at unlocking value through a potential initial public offering or a sale of a stake in Hooq to a new strategic partner.

Southeast Asia poses a challenge for OTT companies such as Hooq, given the insufficient levels of disposable income in the region’s emerging markets and the abundance of low-cost local competitors, according to Fitch Solutions.

Hooq’s troubles are emblematic of local businesses in developing markets that go head-to-head with global heavyweights such as Netflix, which have deep pockets due to their seemingly unlimited access to relatively cheap capital from public sources.

That financial advantage helps major players sustain operations in a competitive environment driven by affordable prices. Meanwhile, regional firms are finding themselves running out of firepower, more so now because of the downtrend brought about by the Covid-19 pandemic.

Image credit: Iflix

Singtel’s sudden decision to shut down Hooq came as a surprise to some of the startup’s senior staff. “At the start of the year, we were evaluating options to close operations in our weakest markets such as India and the Philippines,” recalls a former Hooq executive who didn’t want to be named.

The economic slump stemming from this public health crisis may have accelerated Singtel’s decision to pull the plug on Hooq, the source says. But business conditions were already unfavorable even before the coronavirus outbreak.

A spokesperson explained that while Hooq had been raising funds, it didn’t secure any further investment this year – an outcome that’s related to the company’s “insufficient growth” instead of Covid-19.

Iflix, Hooq’s Malaysia-based competitor, appears to be struggling as well, racking up accumulated losses of US$378.5 million since it was co-founded by Patrick Grove, Luke Elliott and Mark Britt in 2014.

Streaming services seem to have adopted the Silicon Valley model, notes Thomas Barker, an associate professor at the University of Nottingham’s Malaysia campus (UNMC) who specializes in media, communication, and creative industries. “You pump in money, take on a lot of debt, cut prices, and hope that customers will take it up in a big way.”

These firms are banking on market dominance to kill the competition, Barker contends, and that might have been the case with Hooq. “They were well-backed by Singtel, Warner Bros., etc., but the market was just waiting for the first one to collapse.”

For those that survive, the potential rewards are huge. The online video industry in Asia Pacific will generate US$50 billion in advertising and subscription revenue by 2024, says Media Partners Asia.

All figures in billions of US dollars
Source: Media Partners Asia

Hooq’s exit leaves Southeast Asia up for grabs between Iflix, Hong Kong-based Viu, and Netflix, says Fitch Solutions. Regional players will need more funding to stay in the game, though raising funds amid the worsening economic environment hasn’t been easy.

For instance, Iflix’s IPO, which was originally scheduled for the end of 2019, remains on hold, and the company has laid off most of its senior management executives in an effort to reduce costs. Iflix raised US$30 million in July from US fund manager Fidelity that slashed its valuation by 25% to US$300 million, ex-employees told The Ken.

SVOD – Subscription video on demand; ARPU – Average revenue per user
Source: Dataxis

But so far, none of the regional OTT providers have been able to reach a scale that would make their businesses viable and sustainable.

Among the difficulties they face include unreliable internet infrastructures as well as underdeveloped payment platforms across Southeast Asia, says Barker. Trying to build a regional audience is also hard because of linguistic and cultural differences between countries, he adds.

But a big homogeneous market presents its own hurdles.

Going all in

Nowhere is the free-for-all more evident than in India. Global majors seeking a huge and high-potential market have poured millions of dollars to create and license content in the country.

India is set to be one of the world’s top 10 media markets by 2021, with revenue estimated to hit US$52.7 billion in 2022 from US$30.4 billion in 2017, according to a report by PricewaterhouseCoopers (PwC).

As home to one of the world’s largest English-speaking populations, India offers a significant opportunity within Asia. In comparison, China’s censorship, homegrown giants, and linguistic challenges make it an almost no-go for international players.

The PwC report also found that the Indian OTT market is expected to reach a cumulative annual growth rate (CAGR) of 22.6%, hitting US$823 million through 2022 from US$296.7 million in 2017, says PwC. It will outperform the 10.1% CAGR growth in the worldwide video OTT market.

Video-streaming services are relatively inexpensive in India. Netflix’s mobile-only plan, for example, costs about US$2.6 a month. Hotstar and Disney+ plans start at about US$0.43 per month while Amazon Prime’s plans start at about US$1.7.

Despite the cheap prices, global majors aren’t shying away from investing. Netflix is plowing roughly US$400 million into India through 2019 and 2020 for original and syndicated content. In early 2018, Amazon said that it will plunk down some US$263 million in original local content.

“We just made a decision to double down in our Prime Video investments here in India,” Amazon CEO Jeff Bezos said at a conference in January. “It is doing well everywhere, but there’s nowhere it’s doing better than in India.”

With slick marketing and movie-standard budgets, Amazon Prime launched India-focused series such as Mirzapur, and Inside Edge. Meanwhile, Netflix roped in Bollywood star Saif Ali Khan to headline crime drama Sacred Games, which was a smashing success.

Cold start

Meanwhile, Hotstar, India’s dominant video on-demand player, is in the midst of an identity crisis.

It provides streaming services under a subscription and advertising package, but its ad revenue has taken a hit in the wake of Covid-19. The pandemic has indefinitely postponed the Indian Premier League, the country’s leading cricketing event. Hotstar got the streaming rights via its parent firm Star India’s US$2.55 billion purchase for global media rights through 2022.

Following a one-week delay in its India launch, Disney’s streaming service debuted on April 3 at roughly US$20 per year. The US entertainment juggernaut took control of Hotstar after its US$71 billion acquisition of 21st Century Fox in 2019.

Photo credit: Anthony Quintano (CC2.0)

A struggle within Hotstar’s management since the deal is adding to the company’s woes. Executives from both companies are clashing on everything from content and strategy to company culture, several former and current employees tell Tech in Asia.

Hotstar has also seen a string of exits from its senior leadership. “The 36th floor was mostly empty even before the [Covid-19] outbreak,” said an employee who asked for anonymity. The source was referring to the executive floor at Hotstar’s headquarters.

Tech in Asia reached out to Hotstar and Disney, but they didn’t respond to requests for comment.

Opportunity in adversity

Despite its detrimental impact on the economy at large, Covid-19 could be a silver lining for OTT players since stay-at-home measures across the world are projected to result in an explosion of online consumption, analysts say.

OTT providers are expected to ramp up ads and promotions to gain market share during this period, Kenny Liew, a Fitch Solutions’ analyst tells Tech in Asia. He cites the example of how Iflix has made its entire catalogue free for Malaysian subscribers. “They’re likely hoping that a portion of these free users will convert to paid subscriptions.”

Those with the scale now have a “golden opportunity” to double down on investment and expansion in the Asia-Pacific region, says Vivek Couto, an executive director of Media Partners Asia. “Moves over the next three to six months will define winners in 2021 and beyond.”

Netflix and Viu have done reasonably well in Southeast Asia while HBO Go is growing at a steady pace, Couto notes.

“Everyone sort of rushed into Asia… but it is quite a fragmented market,” says UNMC’s Barker. “A single Southeast Asian market is near impossible.”