The Economics of Movie Releases on Indian OTT Platforms

How do OTT platforms make money if they release new movies directly on their platforms? And that too without ads!

People of Tamilnadu can’t imagine a Deepavali (we don’t say ‘Diwali’) without movies. A typical Deepavali in Tamilnadu comprises bursting crackers, wearing a new dress, eating sweets, watching pattimandram, and the release of big-budget movies in theatres. People start flocking the theatres for 4 AM shows and will hop between theatres and shows until they’ve seen all the movies or the same movie a couple of times (until they’re satisfied). Going to movies by itself was a major celebration of every Deepavali. But, we missed it this year.

Even though the government ordered the reopening of movie theatres, the spaced seating arrangement, and the strict sanitization protocols made it difficult for movie producers to release their movies in theatres. Reason? Movie theatres can only seat 50% of the audience in theatres, which would take longer for production houses to recover the cost. Normally, producers and movie distributors would rely on the long weekend to make the most returns with every show in every theatre running at 100% occupancy. With the new rule they can’t do that. Also, people are still hesitant to go to theatres to watch a movie.

But, on the other side, OTT platforms Amazon Prime and Disney+Hotstar released big banner movies like “Soorarai Pottru” and “Mookuthi Amman” on their platforms during this Deepavali.

This was a huge leap. Many in the past, including Mr.Kamal Hassan tried and failed to bring new movies to the small screen. But, the ongoing crisis and the rise of OTT platforms have paved the way for a new era in the history of Tamil and Indian cinema.

Those who had the idea, but were way ahead of their time

Before OTT platforms set foot in Tamilnadu, many have tried to bring movies to the smaller screen.

In 2014, director Cheran started C2H (Cinema to Home) where he wanted to release movies on smaller screens on the same day as the theatrical release by selling DVDs of the movie. He believed that this way, the industry can control movie piracy which was a huge problem.

The distribution was in the form of DVDs and Cheran partnered with CD/DVD maker Moser Baer who were also selling Tamil movies in DVDs for Rs.99 and 149 in all major stores.

But, sadly the idea failed to work as theatre owners and film distributors did not agree to co-operate.

Even before Cheran announced C2H, in 2013, Kamal Hassan wanted to release his movie Vishwaroopam via DTH providers like Tata Sky, Airtel, Sun Direct, Videocon, and Reliance. The movie was scheduled for release on 25 January 2013 and the DTH premiere was scheduled for 02 February 2013.

But, that did not happen either as there was a backlash from film distributors and theatre owners.

For a very long time, the industry was so protective about releasing a movie anywhere outside of theatres and television premiere rights which was usually three to six months from the theatrical release.

But, OTT (over-the-top) video platforms changed the game.

Big Push for small movies

When Amazon Prime began operations in India, they started buying rights for small budget films that were light on their pockets and worked well with the audience. This includes movies like Jiivi, Mahamuni, kadavudaari, Android Kunjappan, Jallikattu, and so on.

Later they started signing deals with bigger production houses and stars (Darbar, Viswasam, Bigil, Kaapaan, Asuran, etc.) stating that they’d add the movie to the video streaming service a month after the theatrical release of the movie. Even though this received some backlash, production houses and movie distributors did not care much as they made huge profits within that thirty day period.

But, the onset of COVID brought the entire movie industry to a halt for several months. Producers who were waiting to release their movies started bleeding money as they have to pay interest (for the amount they borrowed to complete the movie) for every month the movie is delayed. Big production houses were able to manage as they had enough funds to push them through this rough patch. But, it is the smaller production houses and actors-turned-producers who suffered the most.

When they were looking for a way out, OTT platforms like Amazon Prime, Disney+Hotstar, Zee5, SonyLiv, Voot, etc. came to their rescue.

They bought several movie titles and series by adding a markup on their production cost. They started with the release of small budget movies like Ponmagal Vandhaal and Penguin and later moved on to the big titles.

Blockbusters on OTT platforms — How it works?

Some of you might be wondering, how do OTT platforms make money if they release new movies on their platforms, and that too without ads! The answer is they already have money from the subscription amount we pay them.

Let’s do a simple calculation to find out how much money major OTT platforms like Amazon Prime and Disney+Hotstar make every year.

Amazon Prime

From a recent article, we know that Amazon Prime has 10 million (1 crore) subscribers in India. Each pay Rs.999 per year. So, Amazon Prime already has 1,000 crores in recurring revenue (just in India!). Now, let’s take the example of a movie like ‘Soorarai Pottru.’

A news report speculates that Suriya’s latest movie is made with a tight budget of Rs.15 crore. Suriya’s salary is not taken into account as he was the producer and is expected to make revenue from the movie’s success. The news report also speculates that the movie was expected to make a pre-business of Rs.40 crore (excluding collection).

But, with the ongoing COVID crisis, Suriya has decided to release the movie on Amazon Prime and television rights to Sun TV.

Assuming that Amazon had brought the movie rights for the speculated pre-business revenue of Rs.40 crore and Sun TV had brought the television rights for Rs.5 crores (these are complete assumptions. So, don’t hold me to it), Suriya would’ve made 2 times the production cost as revenue and Amazon would still have 960 crores in the till (of course they will have less than that considering the salaries, marketing costs and tech budget, but you get the idea).

If they have even 50% of their annual revenue (500 crores) for acquiring movie rights, they can buy ten movies like Soorarai Pottru or twenty to thirty low budget movies in a year (across languages).

They also produce small ventures like ‘Putham Puthu Kaalai’, which features five short films from prominent directors. When I spoke to a source who works in the film industry they said that Amazon Prime offered a set budget to each director (~ Rs.40 lakhs) to complete the movie. Whatever is remaining (after the production costs and paying the actors and technicians) of the movie budget goes to the director which I heard to be a sizeable amount for a short film. Considering these numbers, the entire anthology would’ve been completed in a stringent budget of Rs. 2–3 crore.

Bringing new titles not only builds loyalty among subscribers but also brings revenue. Every time a new movie releases, it attracts new subscribers. Paying Rs.999 per year is the equivalent of what a middle-class family would spend on watching one movie in the theatre (including popcorn and snacks).

Disney+Hotstar

I was surprised to see Disney+Hotstar have more subscribers than Amazon Prime. The platform currently has 18.5 million users. Thanks to IPL and Game of Thrones, Hotstar has hooked people right from its beginning with the right content.

With 1.85 crore subscribers paying an average of Rs.699 (averaging Rs.399 (VIP) and Rs.999 (Premium)), Hotstar currently has a recurring revenue of Rs.1230 crores (approximate).

When they announced Hotstar Multiplex early this year announcing the release six major Bollywood movies, it surprised a lot of people.

But, we should also note that after the launch of Disney+Hotstar, the price of the Premium subscription went up by 50% bring it to Rs.1499 per year. Even if there is churn, Hotstar would be able to meet their recurring revenue next year as well.

And, they made good use of this money by bringing the right movies to their platform. Their Deepavali release “Mookuthi Amman” would have a lower budget (Rs.8–10 crore) than Soorarai Pottru, but would’ve been sold for a good price to Hotstar.

Zee5

Zee5 is another major player who is catching up fast with players like Amazon Prime and Disney+Hotstar. They’ve produced a lot of regional shows and are working towards releasing more. According to a news article published earlier this year, Zee5 confirmed it has plans to release 70 to 80 original shows and 15 original movie titles on their platforms.

The right steps: Partnership with TV manufacturers and Telecom Service Providers

One smart thing the OTT platforms have done is that each one of them had the vision to be part of the future of entertainment. And, they realized early in the game about what it takes to get there. The OTT platforms understood that the best way to ensure revenue is to reduce friction for users to access their content. Rather than fighting for exclusivity, they decided to join hands and create an ecosystem for original content. To make it happen, OTT platforms grabbed every opportunity that was available. Be it partnering with television manufacturers to include their apps, or partnering with telecom providers to give free subscription on every postpaid connection.

And, not just that!

They also signed deals with Internet Service Providers (ISPs) like JioFiber and Airtel who now offer a wide range of OTT subscriptions with every internet plan for free. The marketing and availability made OTT platforms as important as having an internet connection. This way, OTT platforms can retain their recurring revenue and keep giving us good movies. On the other hand, it will also provide the opportunity for new and established filmmakers to co-exist and win people’s hearts.

Originally published at https://karthikpasupathy.com on November 19, 2020.