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Golden opportunity for Indian content startups

A revolution was ushered by Reliance Jio in the Indian telecom space that made the staunchest critics of its market strategy bow down. Not only did the market entrant push up internet penetration exponentially, it did so by giving its users daily gigs of data – that they earlier consumed over an entire month – at much cheaper rates, driving down tariffs in the entire market.

Finally, India’s digital dream, so far being pushed by increasing smartphone usage, got its much-awaited shot of affordable data, unleashing the next big opportunity for Indian content start-ups. The scope, as we see here, goes beyond the Facebooks, Netflixes, and Amazons of the world; we envision a growing market of Indian content for the Indian user.

Given this backdrop, what kind of platform opportunities can entrepreneurs take advantage of? We’ll set the ball rolling by putting our thoughts on three dimensions  – content generation, frequency and distribution – which excite us and what we consider as sacrosanct approaches to succeed in this space.

Content Generation – We believe in supporting content platforms where either user are generating content or content is being aggregated from across multiple sources

In terms of content ownership, we broadly bucket startups into three categories; the ones enabling users to create content (like Youtube and Instagram), the ones aggregating content across productions (like Spotify), and the ones producing their own content (like Disney). Of these classifications, our bias is towards the first two.

UGC platforms enable people to express themselves. Since the creation of content is democratized and not restricted to a few creatives, such platforms can ensure much higher demographic reach in terms of user diversity, language, content type, content form, etc. and can adjust to the latest trends & tastes of the audience.

Also, getting users to generate content offers capital efficiency and it is much more defensible because of inherent network effects. Every incremental user/creator increases value for everyone else on the platform. Global examples like Youtube, TripAdvisor, Reddit etc. have proven that while users join the platform for content, they get hooked to the platform because of its newness of content and network effects. India presents a huge opportunity to build a UGC platform for categories like entertainment, religion, food, lifestyle, healthy habits etc.

At the same time, for categories such as news, music, sports, movies, shows etc., where there is a need for high fidelity, aggregating content across multiple sources is a better approach as it ensures that the basic content quality standards are met.

Like UGC platforms, aggregators ensure a high demographic reach and can adjust to the latest trends & tastes by having a diverse set of content sources. However, since such companies do not own the content, they need to offer a more superior experience than the individual sources (for instance, automatic curation / superior distribution/personalization etc.), which would make a user stick to their platform.

While one can build an interesting business with the third approach of producing high-quality content (e.g. a 20 minute 10 episode web series), such companies would look more like media companies. There the creativity matters more than the technology, making them a hit-or-miss business. As a tech investor,  such models do not excite us much, since they are hard to scale and the role of technology is limited.

Content usage – We believe in supporting high-frequency content platforms or low-frequency platforms that can steer transactions

For a venture bet on a content company, an inherent high-frequency product is essential. High frequency drives engagement and as users increasingly give more time and attention to the platform, the propensity to stick with the platform increases. This user currency offers a potential to build multiple use-cases on the platform and can result in higher monetization avenues. YouTube is a good example, which started with video streaming and has launched live video, music streaming, YouTube for kids, YouTube Movies, a social layer etc. over time.

In our opinion, a general recipe for building high-frequency platform is to cater to the entertainment need of the audience. YouTube streaming, Netflix movies, Wattpad stories, Kwai mini clips etc. were all built primarily for entertaining users. The entertainment quotient boosts usage frequency and attracts a much larger audience making it easier to maintain retention, drive engagement and build scale.

Although Facebook and Youtube already exist in this space, there lies a huge opportunity in tapping the next 300mn vernacular users of the country. 99.9% of the internet content is there in languages that 90% of the Indians don’t understand and this Indian language internet user base is growing at 41% per annum. This, therefore, presents an arena of huge opportunity – startups can innovate on the content form (audio, video, gifs), content type (short snacky vs long engaging) and content categories (religion, Bollywood, politics) etc. to build high-frequency content platforms.

Transaction focused content opportunities: In verticals like travel, education, fashion, food, fitness, etc., where one can engage more deeply with the user and can control a significant part of the value chain, there is an opportunity to build a content platform that can drive transactions. This helps in differentiation from global platforms (Facebook, YouTube, Instagram etc) and also in having multiple monetization avenues. Cookpad, Houzz, Tripadvisor, Stackoverflow are some international examples which have made meaningful businesses in this space.

Content distribution – We believe that platforms which have their own distribution layer (a mobile app or a website) are more likely to give outsized returns in the long run

Keeping the end consumer hooked requires a start-up to build its own content distribution network and not depend on third-party platforms for content delivery. Owning the distribution layer gives the access to user data (third-party platforms don’t share the user data) which is the key to monetization, product adaptations, and user targeting. This might be tough in the beginning but offers an infinite scale at maturity, unlike third-party platforms which present a huge scale initially but can limit it once the start-up grows big.

Dependence on an external distribution platform can potentially limit a start-up’s growth and can eat into ad revenues. Also, it is harder to adapt to the needs of your consumers on third-party platforms as you do not possess them. The third-party platform dependence is much worse in India as the dominant platforms are owned by Facebook and any change in its policies can potentially harm startup’s business model.

That said, I am not opposed to the idea of acquiring audience via third-party platforms like YouTube, Whatsapp, Instagram, and Facebook. It is a good way to increase the top-of-the-funnel as these platforms have tons of user-data for better targeting. While doing so, one should ensure that these platforms are just a means of user acquisition and any further engagement is done on the content platform itself.

Content Monetization – We believe that there is an opportunity to break the Google-Facebook duopoly in the Indian digital ads. Affiliate revenue businesses would need global scale and subscription revenue business would be harder to scale

Content monetization – the practice of actively making money from content that exists on your website, application or anything in between – can be broadly classified into advertising revenue, subscription revenue and revenue from affiliates.

Talking about the Indian digital ads market, its size is approximated to be of about $1.5bn and is growing at a CAGR of 40% with Google & Facebook being the dominant players. We feel that there lies an opportunity in this space to gain up to a market share of 10% and crack the existing duopoly structure.

For acquiring a significant percentage of this ads market, a content platform should be characterized as having an enormous reach and engagement. It must also be noted that India has a dearth of online vernacular content and I believe that a digital content platform encompassing such matter can substantially increase the market by shifting ads dollars from TV & print.

Fun Fact: India has a growing TV ads (8% per annum) and print ads (5% per annum) industry unlike any other country in the world.

Apart from this, we believe that the platforms monetizing via affiliates commissions would need a global scale to hit meaningful revenues. This is primarily because of the absence of online players (brands & retailers) wanting to pay affiliate commissions and the unwillingness of the online players to get substantial sales from the affiliate channels.

Coming to the subscription avenues, India pays for TV (pay TV market is growing at 9.2% per annum & is expected to reach $18bn by 2025), for education (BYJU’s $100mn+ ARR) as well as for entertainment (8% of 5mn MAU pay on Netflix, 4% of 75mn MAU pay on Hotstar). Despite such successful examples being present, the high quality of content, dependency on FOS/telecall sales, connotation of the internet to free stuff etc. makes it very hard to scale and defend a subscription revenue business in India.

While the tripod serves as a good framework, the best entrepreneurs tend to surprise us with their own belief systems, always striving to mold the future. I would love to connect over a coffee for a debate/discussion if you are building something exciting in this space – please ping me on mridul@stellarisvp.com

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