Star India has gone over the top with a new direct-to-consumer platform, offering ad-supported on-demand on-the-go access to some of India’s hottest content. Vanita Kohli-Khandekar looks at hotstar and its chances.

In February this year, 21st Century Fox’s US$1.2-billion Indian operation, Star India, launched over-the-top (OTT) platform hotstar, offering 20,000 hours of TV shows and movies, across seven languages and every major sports property there is in India in football, tennis, cricket and kabaddi.

On a normal day or another company, one more app in a market about to register a billion mobile connections may have gone largely unnoticed. This time though, the scale of the effort involved and the implications for other programmers has the industry everywhere on high alert.

Hotstar is Star/News Corp’s third serious foray into India’s online world. The first was Indya.com (2000). The second was Star Player, which followed nine years later. The most recent hotstar platform is part of a broader online play, with, among others, the recent acquisitions of film trade publication Screen from the Indian Express Group, and VCCircle, a B2B media firm focused on the investment community. “When we did Indya.com (2000) or Star Player (2009) we had limited expectations. The scale and depth of this attempt is significant,” says Sanjay Gupta, Star India’s chief operating officer, who thinks hotstar should attract a meaningful share of India’s US$720 million online ad spend and break even in five years. He won’t disclose any other financials.

21st Century Fox co-chief operating officer, James Murdoch, says the motivation behind hotstar is to offer Star India’s 14,000 hours of Indian production a year to customers in a new way.

“Our programming is good and we pretty much own all the rights,” he told delegates at the Asia Pacific Video Operators Summit (APOS) in Bali in April, describing opportunity in India as “staggering” and saying that Star India’s operating profit could hit US$1 billion by 2020.

Hotstar will be part of that. But for now, Star India’s plan is to “just get on with it and... build an audience first, before we get to the revenue part”, Murdoch says.

For now, hotstar is sticking with an advertising video on demand (AVOD) model. The jury is out on how well this will work given India’s online ad rates of about US$1.50-US$4.70 or so per 1,000 people.

Industry estimates put the hotstar investment at a little over US$200 million. The current AVOD-only model is expected to run for 24 months max. Some expect Star India to start migrating to a subscription on-demand (SVOD) model in two years.

Murdoch denies any dates or deadlines have been set. Hotstar may introduce a subscription layer but “we haven’t decided when or what”, he says. An advertising platform is currently being built that is “highly localised and targeted... A lot of advertisers in India today are only able to advertise on radio or local vernacular press,” he adds.

Whatever the speculation about hotstar’s way forward, the certainty right now is that take up has been stellar. At 16 million downloads and 50 million unique users by mid-May, hotstar has seen “the fastest adoption for any digital service in the world. Facebook took 10 months and Spotify five months to get to a million,” Star says.

“Hotstar has made a great start,” agrees Vivek Couto, executive director of consulting firm Media Partners Asia (MPA).

About 60% of hotstar’s views come from drama, an indicator of a steady appointment-based audience that ensures advertising revenues. The average time spent on the app is 30 minutes per consumer a day. This compares well to the three hours or so that Indian families spend watching TV every day.

While no one claims hotstar victory just yet, there are multiple reasons this OTT service has a fighting chance.

About 92% of India’s 160 million TV homes have only one television set. Most families that can afford to, choose not to buy a second or third set because they believe it will disrupt family life. This puts physical limits on the growth of TV consumption. If hotstar becomes the second, third or fourth screen, Star could expand the audience for television programming in the world’s second largest TV market.

The timing couldn’t be better. A 2014 study by the Internet and Mobile Association of India shows that more than 78% of the 152 million Indian internet users were mobile and they spent an average of just under US$4 a month on mobile internet. That is very close to the money Indians spend on cable TV. There are 70 million smartphone users in India and about 59 million who consume online video, according to comScore data.

The new online initiatives feed into – and will hopefully help monetise – Star India’s massive bet on sports. The broadcaster now owns the rights to major sports properties, including all Indian cricket until 2018, the English Premier League (EPL), Formula 1 and U.S. Open, among others. Plus it owns online rights for the Indian Premier League (IPL).

Hotstar is also part of Star India’s bid not only for greater control of online advertising and monetisation, but also of the viewer experience.

While Star has been among the top 10 channels out of India on YouTube for several years, Star India chief executive, Uday Shankar, says the experience has been suboptimal. “We were not happy. The entire experience of content must be heavily calibrated for the content to have the effect that you want. When it’s just sitting cheek by jowl with some jumping cat somewhere and some badly made video, and here is the drama that your team has spent months and years developing... It’s like putting a high-quality painting next to someone’s dumb stuff,” he said at APOS in April.

“We were very clear that we did not want our content exposed in that kind of environment,” Shankar adds. Star started pulling its content off YouTube in the middle of 2014.

“YouTube is like a mall. Hotstar is more focused,” says Jai Lala, head, trading and partnerships, central trading group, GroupM, India’s largest media agency.

One of Star India’s biggest challenges in rolling out hotstar was organising and curating content and technology. Most U.S. shows have 13 episodes a season with a total of about 100 hours over eight years. Indian shows just go on and on, running for up to 1,000 hours in seven years. This makes discovering a show or an episode online difficult. To beat this, hotstar has organised drama episodes into ‘chapters’ of 15-20 episodes around a theme.

Mobile broadband infrastructure and smartphone technology – including low-end brands and starter operating systems – are among the challenges.

Bandwidth constraints have been countered with technology that can deliver acceptable video quality on bandwidth constrained networks. Gupta says speed can vary from 20 kbps to 150-200 kbps. Hotstar programming is versioned to work across 7,000 screen sizes and operating systems.

Payment gateway issues and low credit card penetration contributed to the decision to offer hotstar for free. “The challenge is really driving consumer engagement and generating significant scale ad revenues. It is also about moving into more location-specific and direct-response advertising, which means closer competition with Google,” MPA’s Couto says.

That is a tough one. Google gets more than one-third of the US$133-billion global online ad revenues and about two-thirds of all searches in the world. Aggregators such as Google’s YouTube or Facebook and their algorithms dominate the online space and set the rules. So far, nobody has managed to win a battle with them.

Gupta is not worried. “Our network share of viewership in India is meaningful (about 22% all India across all of Star’s channels)... hotstar therefore becomes a meaningful destination,” he says.

Free content via hotstar isn’t negatively impacting Star India’s existing pay-TV business.

For one, Shankar says, accessing hotstar is not actually free. “We talk about the consumer all the time and then we go and say it’s a free model. It’s not free to the consumer, who is still paying for the data,” he says. And those charges are “unbearably high... Wanting the consumer to watch more content on these devices and expecting them to incur huge costs is unrealistic,” he insists.

Many in the online world believe complicated and/or costly access is a death warrant. And particularly in India, which Shankar describes as a “nascent market” with no appetite for data/content complexity.

Murdoch adds that the AVOD model was chosen to remove any possible additional “friction” in the mobile experience, primarily those created by infrastructure bottlenecks and high data costs.

“One of the problems with mobile broadband is that the data tariffs are not fit for the modern consumption of video,” Murdoch says. “That is the reality. We figured that if we put too much friction for the customer to download, it would be a real problem,” he adds.

Murdoch talks about ease and simplicity. “The authentication pathways for delivering great differentiated digital experiences are really hard for customers and we need to get way better than that,” he says, adding: “The reason Netflix is growing so fast is that it’s so easy to sign up and use. We need to work with our partners to make the experience frictionless”.

Ultimately, Shankar says, the aim is to keep hotstar “as simple for people as possible... a great experience”.