With better internet services at lower tariffs, a new era of internet usage is having a cascading effect on the entire digital ecosystem.

The Butterfly Effect How telecom companies are changing the digital ecosystem in India
Atom Entertainment Saturday, March 04, 2017 - 15:05

In less than two years after Prime Minister Narendra Modi launched the ambitious ‘Digital India’ campaign to improve online infrastructure and better Internet connectivity, especially in rural areas, India surpassed the USA to become the world’s second largest internet market.

A recent report published by Internet and Mobile Association of India and market research firm IMRB International suggests that the number of internet users in India could touch 450 million by June this year. The report also states that the overall internet penetration in India is currently at 31%.

However, the 'Digital India' campaign hasn't quite penetrated rural India all that successfully.

“Urban India with an estimated population of 444 million already has 269 million (60%) using the Internet. Rural India, with an estimated population of 906 million as per 2011 census, has only 163 million (17%) Internet users. Thus, there are potential approximately 750 million users still in rural India who are yet to become Internet users; if only they can be reached out properly,” the report said.

Interestingly, the report also notes that for 92% of rural users, a mobile phone is the primary device for accessing the Internet.

The smartphone era

Not surprisingly, India has become the world's second-largest smartphone market after it surpassed the US in early 2016.

Smartphone companies like Samsung, Micromax, Intex, Xiaomi, Lenovo and Oppo account for more than 50% of the total smartphone sales in the country today and the introduction of a wide-range of low-cost smartphones has encouraged millions of new consumers to connect to the internet and other services.

While smartphones have enabled consumers across the country to become part of the digital ecosystem, the real game changer has been the manner in which telecom companies have tried to increase their customer base with competitive pricing and better internet services.

Surge in online consumption of entertainment

The arrival of Reliance Jio in early September, 2016, came as a major shot in the arm for the telecom sector and in less than 180 days, the company has been able to cross the 100 million subscriber mark, thanks to its decision to make all the 4G services, including data and voice calls, free until March 31, 2017.

Putting it in perspective about what this means on a global scale, in a recent press conference, Mukesh Ambani said, "…just five months after Jio’s launch, Jio users consumed more than 100 crore GB of data. Today, India is the No. 1 country in the world for mobile data usage. Jio users consume nearly as much data as the entire US and nearly 50 per cent more mobile data than all of China.”

If you are wondering what's the reason behind the sudden surge in the traffic and number of views for Youtube videos (especially for movie related content), websites among many other things that are accessible on mobile phones, a substantial portion of that traffic came from those 100 million subscribers who gobbled 100 crore GB of data in such a short span of time.

Moreover, other telecom companies like BSNL, Airtel, Vodafone, Idea too are vying for their share of the same pie and it has led to an interesting set up where mergers and acquisitions have become the way forward to ward off competition, especially from Reliance Jio.

Digital media companies, especially, which are into content distribution and production, across the country have seen a big surge in traffic.

From TV to digital

Acknowledging that there’s been a big jump in the mobile traffic, V Rama Krishna, Managing Director of Whacked Out Media, says, "The overall internet penetration has increased so much in the past few months that it has caused a sudden spike in our mobile traffic to a tune of 30% in addition to the existing traffic. Internet as such has democratized the content creation space, while its penetration has led to better consumption. The average time spent by audience on Internet has increased dramatically. It will soon surpass the average time spent on traditional TV as Internet caters to both entertainment as well as information"

A source privy to the developments on the data consumption, especially on Youtube, reveals that, according to an internal report by Youtube Internet Research team, 70% of the traffic for entertainment-related content on Youtube has been originating from mobile phones and the share from rural markets alone is 31%.

The phenomenal growth in usage of smartphones has led to another big shift in the viewing patterns of the audience. The same report by Youtube is said to have outlined the shift to digital from TV.

While print has retained its readership, digital platforms are said to be making a big dent in TV viewership. A year ago, the average time spent by a consumer to watch TV was close to 3 hours per day, that number has fallen to 1.7 hours per day now according to a recent survey. Meanwhile, the average time spent on internet, especially through mobile phones, has gone up to 1.2 hours per day.

Even if we assume that Reliance Jio didn't single-handedly change the whole game in terms of how people use mobile phones to access content on the internet, it has certainly been the most potent catalyst in the equation. Getting plugged to the internet hasn’t been this easy!

Video-On-Demand is the next big thing

This brings us to the most important question, considering how internet penetration and lure of free data has increased the consumption - Will digital media invade TV industry's territory? Some industry experts already foresee changes that could become a mainstream phenomenon in less than two years. One such trend, many say, is going to be the rise of pay-per-view model as an alternative source of revenue for content creators.

Rajkumar Akella, Managing Director, Theatrical, India of ComScore, says, "The rise in data consumption clearly shows how the market has grown in the recent few months. This is a big advantage for filmmakers too. Now, the sale of digital rights will fetch more revenue for the content creators. Till now, films would end up being screened on TV after their theatrical run, but with the digital media becoming so big, films will end up straight on the digital platforms like Youtube, Netflix, Amazon Prime, Hotstar or any other such platforms, before being screened for free on TV. Some of these media companies, like Amazon Prime, have already begun buying digital rights of regional movies and this is only going to get bigger in near future."

So far, there has been so much emphasis on films being screened on TV first before they are released on video platforms like Youtube that it remains to be seen how the TV channels will adapt to this change that's bound to happen.

Musani Sreenivasa Reddy, a Hyderabad-based tech entrepreneur and Chairman of Ektha Group, has been following these developments closely in the past couple of years.

Having invested in a whole lot of new age digital and tech companies, he opines, "Since the time spent on mobile phones is increasing in a big way, video platforms are going to be even more relevant. The only hindrance right now is monetizing content. As of now, the revenue mostly comes from the ads but for the economics to work on a big level, at some point, it's better if the consumer pays for the content. This is why micro-payments from the consumer's side are the need of the hour. We have a huge consumer base with a hunger for good content and if we could price the videos - be it films, web series or short films etc - for as low as Rs 2 or Rs 5 per video, we could see big numbers with such a massive spike in internet usage. E-Wallets are going to play a major role in this trend."

Where's the money?

This is the truly the age of user and creator, and the whole process has become quite democratic with the emphasis being on quality. But, if everyone is creating so much content, the question is are they also making good money? The answer is 'It's complicated'.

Contrary to other video sharing or video-on-demand platforms, Youtube has evolved as the easiest platform to share content. Content and revenue (generated through advertising) was like a cyclical process - both of them needed each other.

In the past six months, the number of people accessing content increased a lot thanks to the onslaught of Jio; however, during the same time, the advertising budgets haven't been able to match the demand.

Sanjay Reddy, Founder and Director of SillyMonks Entertainment Pvt Ltd, says, "In the past 12 months, the advertising fill rates have dropped to 30%. Even though the market has increased by a huge number resulting in more views for the videos, the revenue hasn't been increased substantially. We are all living with it but it’s a great situation to be in because one day monetisation will catch up. In a way, content distribution and production companies like ours are better off because our networks attract premium ads and we are equipped to safeguard content through fingerprinting and other techniques."

As digital media companies gear up to become a dominant force, the idea seems to be vying for the space that was once TV industry's stronghold. Sanjay adds, "TV industry went through a lot of changes in the last 10 years and today, TV channels are available in every nook and corner of the country. With internet usage increasing even in rural areas, we are slowly moving in the same direction. The day isn't far when advertisers will be forced to look at digital channels as well because it's all about grabbing the most eyeballs on par with television.”

From April 1st onwards, Jio users are expected to shell out Rs 303, along with a Reliance Jio Prime Annual Membership fee of Rs 99, to continue to access all of JIO's services. And everyone's waiting with bated breath to see how many subscribers the telecom giant will manage to retain and how long will it continue to offer high-speed data at a low cost.

With so many people getting addicted to using the internet on their mobile phones, it's a million dollar question about how the overall data consumption is going to have an effect on the digital ecosystem. The real power, so to speak, will lie in the manner in which people are going to plug and play.

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