Is being digital profitable?

This question is probably the uppermost in the minds of the digital entertainment entrepreneurs both on the content as well as the platform side. It is also important to the legacy content and legacy platforms that are looking to change to digital. The fact which has stood out is the change in consumer choice as well as preferences, which are rapidly shifting towards digital platforms. The change has been quite sudden and swift, as was witnessed in Print as well as Music. The legacy business models, the brands, revenue streams like advertisement as well as subscriptions – are all under threat, though to varying degree based on the technological progress as well infrastructure of the country. Consumer preferences dictate the businesses to be ‘Digital’ but the businesses need ‘Profit’ to be sustainable as well as attractive to the investment community. While this paradigm shift takes place, how does the entertainment business change and also remain relevant?

As you peel down the layers, the core of the Entertainment business remains ‘CONTENT’ Engaging content is what draws in the customers and the revenue. This remains true today as it has been in the past and probably is not likely to change in the future. Therefore, engaging content is the first key to any profitable entertainment business, either digital or otherwise. Content is engaging if it caters to the right genre, has the right production values and in today’s time is capable of being appreciated cross border as well as presented across multiple screens. The writers today visualise cross border audiences as well as their sensibilities and the production technology is advanced enough to fit it across screens.

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While Good ‘CONTENT’ remains as the heart of every potential profitable Entertainment business, it’s ‘Distribution’ and ‘Monetization’ is equally key for the business to be profitable. ‘Distribution’ is the area which has seen and is likely to see the maximum change. The change has largely been due to technology which has functionally changed the way the content is distributed and consumed. Some examples:-

  • Physical print media to online media.
  • Physical video tapes / films to online transfer as data.
  • Content transfer through internet.
  • Access to content through mobile devices.
  • Change from fixed time viewing of content to ‘mytime’ viewing.
  • Change from fixed place viewing to anytime/anywhere viewing of content.

With the abovementioned changes in consumer preferences largely enabled by technology, ‘Distribution’ has become complex. It has also changed the profile of the distribution players from being businesses having access to exhibition and linear platforms to being technology driven enterprises having large investments in technology enablers. The revenue lines for each of the constituent’s i.e. the content owner, the distributor, the exhibition platform have also blurred due to rapid change in technology, consumer choice and possibility of different forms of delivery. Therefore understanding ‘Distribution’ in its current as well as changing state is the key to getting the maximum value for your ‘Content’.

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‘Monetization’ in the legacy business has rested on three pillars. The first one is ‘Advertisement’ which has been a key contributor to the revenue for Entertainment businesses. Advertisement follows engaging content and the good news is that on an overall basis, it is expected to grow 11 – 12% on a year on year basis for the foreseeable future in India. Digital advertising in recent times has seen a phenomenal growth even though legacy platforms continue to be major beneficiaries of the advertisement stream. Therefore the question remains as to what will be time frame of the switch of the advertisement revenue stream from legacy content and platform to digital. Though the advent of change is apparent, the velocity differs from market to market and is dependent on information, technology, rate of adoption, availability of digital content as well as the consumption devices. It is also apparent that in countries like India or even in some developed markets, advertisement revenue and growth is likely to be available for both legacy as well as the new digital platforms for the next few years.

The second pillar of ‘Monetization’ is ‘Subscription fee’ which also includes entry ticket fee for the films. This revenue stream remains pretty strong for legacy platform whether it is cable subscription for linear TV or ticket cost for film exhibition. The subscription model for E digital content is still not a settled system and will have to come of age if the entire entertainment business were to go digital. Presently while the consumer preference to consume content digitally is growing exponentially, the propensity to pay for the content is not there. Most people want this content for free. Digital ‘AD’ based models are still to convince the investment community of being able to give a good return over a reasonable period of time. Therefore a co-play between the legacy model and the emerging reach through digital could be an interim solution for a profitable Entertainment venture.

Third area of ‘Monetization’ for Entertainment contact is the ‘IPR’ (Intellectual Property Rights’). It is these rights which have provided a recurrent cash flow for the legacy Entertainment business. This model is under dire threat with the advent of technology. With all content being now available electronically, its ownership, its use, as well as collection of royalty are a huge issue to be tackled for the new businesses. Strengthening of the ‘IPR’ regime in India is the key as in some of the mediums like films, half of the revenue comes through exploitation of these rights.

Therefore while it is true that there is a rapid shift of consumer preference to the digital, the revenue line is far from settled. The content for the digital screens is still being repurposed, the measurement systems are still being evolved and most importantly much of the content is still available free. The systems and the attitudes will evolve but till the same happens, today’s digital entertainment business is likely to fail to generate profit in a sustained manner.

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As we experience more it becomes more apparent that in the interim one does need to maximize legacy revenues, as we build digital businesses. With legacy demand as well as revenues still being robust and growing, there needs to be equal attention to be paid to legacy platforms. In the interim, there is merit in having both, the business as well as the brands (digital and legacy) as a focus. There will be a time when the digital revenue of businesses will settle and maybe that will be a time we can forego legacy platforms. However in the foreseeable future, ‘Digital’ is good but only with equal attention to legacy platforms for a predictable profitable future.

 

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