Internet Monthly Newsletter - October 2020
Internet Monthly Newsletter - October 2020
Internet Monthly Newsletter - October 2020
ANALYSYS MASON
INTERNET MONTHLY
Consulting specialists in telecoms,
media and digital (internet)
OCTOBER 2020
1
Contents
Foreword p 3
FOREWORD
Welcome to the October 2020 edition of Analysys Mason’s
newsletter on the internet and digital markets in India
Dear all,
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
The OTT video market in India is expanding, and the COVID-19 pandemic has accelerated the
rate of this expansion. The size of the market is expected to reach USD4.6 billion by 2024 and
the share of subscription revenue is expected to increase. The Indian OTT video landscape
has several players that have different business models and cater to different user segments.
In this article, we evaluate one such player that operates on a predominantly advertising-
based business model. It has amassed a large user base by carving a niche for itself, and its
valuation is expected to grow as it focuses on monetisation.
4,600
Advertising
Subscription
Revenue (USD million)
54%
+35%
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
proportion of this advertising revenue. The size of the YouTube and Facebook have the biggest share of the
OTT video advertising market is expected to grow to OTT video advertising market, however, as observed
USD2.5 billion by 2024 (see Figure 2). in developed markets and with the increasing supply
of content by other OTT video players, YouTube’s
YouTube + Facebook 2,500 share is expected to reduce over time. (YouTube +
Facebook account for approximately 50% of the OTT
Telecom
video advertising market in the USA).
Other OTTs
Revenue (USD million)
45%
• Emergence of telecoms operators as significant
+27%
players in the OTT video advertising market.
Telecoms operators have recently started offering
16% OTT video services to their subscriber base. As
750 operators strengthen their content portfolios and
adoption of these offerings increases, operator-
63% 39% driven OTT platforms will correspondingly generate
0% increased advertising revenue.
37%
2019 2024 On the other hand, the OTT video subscription market,
also known as subscription-based video on demand
FIGURE 2: OTT VIDEO ADVERTISING MARKET, 2019 AND 2024, INDIA
(SVoD), had a revenue of USD325 million in 2019,
[SOURCE: ANALYSYS MASON, 2020]
contributing to one-third of the total OTT video revenue
Growth in this market will be accompanied by the (see Figure 3). Willingness to pay for OTT video content
following. has historically been low in India primarily because of
the relatively high pricing of OTT video subscriptions
• A decline in cost per thousand impressions (CPMs). (compared to income) and widely available free content.
Rapidly growing advertising inventory has reduced fill However, OTT players are beginning to offer OTT video
rates (the proportion of advertisement slots subscriptions at lower prices and using innovative
monetised) and has put downward pressure on pricing strategies. Telecoms operators are offering OTT
advertising rates. CPMs, particularly for video services bundled with their mobile and fixed
unsegmented audiences, will continue to decline. broadband plans; Reliance Jio is preparing to offer
However, the increasing viewership will more than premium OTT video services at very affordable prices,
compensate for this decline. The average time spent and OTT players have started offering shorter duration
by Indian users on OTT platforms had increased plans and are bundling different types of content to
two-fold over the last 2 years and has increased by cater to various user segments. The closure of cinemas
more than 30% over the last few months since the and multiplexes due to the ongoing pandemic, launch
imposition of the lockdown. of a significant amount of digital-first content and
investment in original content has further bolstered the
• A reduction in YouTube and Facebook’s share of the case for growth of SVoD services in the country.
market in favour of other OTT players. Currently,
35.0%
Paid-OTT subscribers as a percentage
of total mobile broadband subscribers
R2 = 0.79
30.0% India (2024): >30%
With increasing affordability, take-up of OTT video
25.0% subscription in India could be >30% of OTT video user
base by 2024.
20.0% For Jio, the OTT subscription take-up rate on its user
base could be much higher due to – significantly lower
15.0% prices, aggregated content from multiple providers and
the benefit of its large captive user base
10.0%
5.0%
-%
-% 0.5% 1.0% 1.5% 2.0% 2.5%
Paid-OTT ARPU as % of monthly disposable income per capita
FIGURE 3: REGRESSION CURVE OF PAID-OTT SUBSCRIPTION TAKE-UP RATE AND OTT ARPU AS A PERCENTAGE OF
DISPOSABLE INCOME PER CAPITA BASED ON INTERNATIONAL BENCHMARKS [SOURCE: ANALYSYS MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
The total number of OTT video users in India is expected • AVoD: advertising-based video on demand.
to grow to 700 million by 2024, and as affordability of
OTT video subscription increases (due to falling prices), • SVoD: subscription-based video on demand.
we expect the take-up rate of OTT video subscriptions
• Freemium: a combination of AVoD and SVoD, wherein
(paid subscriptions as a percentage of total OTT video
some content is available for free (advertising-based)
users) to increase to more than 30% of the total OTT
and the premium content is accessible to paying
video user base (see Figure 3), translating to
subscribers only (subscription-based).
approximately 220 million paid OTT video subscriptions
in 2024. Consequently, the size of the OTT video • Telecoms operator-driven: telecoms operators offer
subscription market is expected to grow to USD2.1 OTT video content bundled with their own services in
billion by 2024 (see Figure 4). order to make their offerings more attractive, which
2,100 boosts revenue.1
325 9%
3%
1%
2020 2024 5%
0%
FIGURE 4: OTT VIDEO SUBSCRIPTION MARKET, 2019 AND 2024,
INDIA [SOURCE: INDUSTRY DISCUSSIONS, ANALYSYS MASON, 2020]
18%
Apart from AVoD and SVoD, transaction-based video on 63%
demand (TVoD) is beginning to gather some pace in the
Indian OTT video market. Historically, YouTube was the
only major OTT video player to offer TVoD, but other
leading OTT video players such as ZEE5 have also
started trying TVoD. As it has been challenging to make YouTube + Facebook TVF
Indian viewers to pay subscription fees, the low-ticket Hotstar Alt Balaji
based TVoD model could emerge as one more avenue
MX Player Others
for OTT video players to generate revenue.
ZEE5
The Indian OTT video landscape has several players
FIGURE 6: OTT VIDEO ADVERTISING REVENUE BY PLAYER, INDIA,
with different business models and catering to
2019 [SOURCE: INDUSTRY DISCUSSIONS, NEWS REPORTS, COMPANY
different user segments FINANCIALS, ANALYSYS MASON, 2020]
FIGURE 5: KEY OTT VIDEO PLAYERS IN INDIA AND THEIR BUSINESS FIGURE 7: OTT VIDEO SUBSCRIPTION REVENUE BY PLAYER, INDIA,
MODELS [SOURCE: INDUSTRY DISCUSSIONS, ANALYSYS MASON, 2020] 2019 [SOURCE: INDUSTRY DISCUSSIONS, NEWS REPORTS, COMPANY
FINANCIALS, ANALYSYS MASON, 2019]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
Various OTT video players in India are targeting different Advertising revenue
customer segments and have positioned their offerings
accordingly (see Figure 8). Netflix, with its premium The platform generates all its revenue through
pricing and unmatched library of international content advertising. However, compared to other players in the
is focused on the premium segment. At the other end, market, its advertising revenue per user is towards the
MX Player, which offers free content and has a large lower end of the spectrum (see Figure 9). In the future,
collection of Hindi and regional content, is focused on we expect the platform’s advertising revenue per user
the mass market. to increase to USD0.4–0.5 by 2024 driven by factors
Hindi/regional
content & low-cost
original content;
launched slightly
upmarket shows
(Ashram) to appeal to
mid-segment
FIGURE 8: MARKET POSITIONING OF KEY OTT VIDEO PLAYERS IN INDIA [SOURCE: INDUSTRY DISCUSSIONS, COMPANY WEBSITES, ANALYSYS MASON, 2020]
A leading AVoD player has amassed a large user such as an increase in engagement per user (time
base by carving a niche for itself, and its valuation is spent on the platform), higher utilisation of
expected to grow as it focuses on monetisation advertisement inventory and improvement in CPMs
through a higher proportion of direct sales of inventory
In the overcrowded OTT video market in India, one of (rather than through advertising networks). Further, we
the players has carved a niche for itself with exclusive
and regional content and has emerged as one of the 0.7
fastest-growing (in terms of viewership) OTT video
platforms in the country. This AVoD-focused OTT video
platform (hereafter ‘the platform’) has garnered more 0.5
150–200 million MAUs in India, generated 0.4
approximately USD35 million in revenue last year and
claims to have more than doubled its monthly revenue 0.3
post the lockdown. More than 30% of the content on the 0.2
platform is regional and has a sizeable collection of
original and exclusive content. It has created a library of
more than 150 000 hours of video content by gathering
a large variety of relatively low-cost content. The
TVF Hotstar ZEE5 Alt Balaji The
platform also has music in five languages and a
platform
collection of more than 60 hyper-casual games.
FIGURE 9: ADVERTISING REVENUE PER MAU FOR OTT VIDEO
PLAYERS IN INDIA, 2019 [SOURCE: COMPANY WEBSITES, ANALYSYS
MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
also estimate the platform’s user base to nearly double 15% 15%
to 300–400 million MAUs by 2024. The increase in
revenue per user and the number of users would
increase the platform’s advertising revenue to USD140–
180 million by 2024. This would translate into the
platform’s advertisement market share to increase
from 5% in 2019 to 6–7% in 2024 (see Figure 10).
6%
2,500
YouTube + Facebook
3%
Telecom 2%
45% 1%
The platform
USD million
Subscription revenue
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
USD billion
the platform’s EBITDA margin is expected to increase to
8–10% by 2024 (see Figure 14). 0.6 – 1.0
Enterprise value ~0.5
FIGURE 14: THE PLATFORM’S ESTIMATED UNIT ECONOMICS, 2019 AND 2024 [SOURCE: INDUSTRY DISCUSSIONS, ANALYSYS MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
The e-commerce logistics market can be further The two largest e-commerce players in India, Amazon
segmented as follows. and Flipkart, have well-established captive logistics
arms and they service 70–90% of their orders using
• First mile. This is the first leg of the supply chain and their captive arms. This means that the captive arms of
refers to the transportation of goods from the seller e-commerce companies account for a large share of
to the logistics player’s warehouse/hub. This the market (50–55%). The market share of
sub-segment accounts for around a 20% share of the e-commerce-focused service providers has increased
e-commerce logistics market. and, conversely, traditional logistics service providers’
share has dwindled as e-commerce players move their
• Warehousing. This refers to the racking, sorting,
logistics in-house or outsource more to e-commerce-
repackaging and inventory management of the goods
focused players.
that are being delivered to the customers. It can also
include advanced sorting at the logistics player’s end Third-party players in India have been expanding into
(depending on the contract), which includes sorting of market segments beyond e-commerce
parcels by region and type of travel (for example,
road, rail and air). This sub-segment accounts for While Flipkart and Amazon have primarily used their
10–20% of the market. captive logistics arms, third-party players have
increasingly focused on expanding into other market
• Last mile. This is the last leg, which includes the segments that can benefit from their organised supply
transportation of goods from the hub to the end chains. While companies such as BlackBuck and Rivigo
customer. The last mile accounts for 60–70% of the have focused on trucking from the outset, other
market share. e-commerce focused players (such as Delhivery) are
now winning more business directly from enterprises.
FIGURE 2: E-COMMERCE LOGISTICS MARKET, SEGMENTED BY SUPPLY CHAIN [SOURCE: ANALYSYS MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
E-commerce players are increasingly supplying • Line haul (hub-to-hub transportation) and last mile
integrated end-to-end solutions to enterprises to fulfil (hub-to-customer) account for a majority of the direct
their logistical needs. FMCG firms already have supply costs (about 80%) involved in logistics, so economy of
chains in place and have thin margins, so e-commerce- scale is the primary driver behind the positive unit
focused players are targeting enterprises in other economics, especially for the first movers in the
segments (for example, those within the consumer market. With a greater concentration of end
electronics space). Figure 4 shows the key players in customers within a certain location, rider efficiency
the industry in terms of the share of e-commerce- has significantly improved, which leads to lower
related revenue. costs.
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
Contribution margin Line haul cost Challenges within the e-commerce logistics industry
First mile cost Last mile cost in India must be solved before efficiencies reached in
more-developed markets can be achieved
FIGURE 5: CURRENT (2019) UNIT ECONOMICS COMPARED WITH
POTENTIAL UNIT ECONOMICS (POST-SCALE EFFICIENCIES) While the e-commerce logistics market in India has
[SOURCE: ANALYSYS MASON, 2020] grown rapidly alongside increasing investor interest and
improved unit economics, there is still a long way to go
The indirect costs are primarily composed of employee
before it reaches the efficiencies of the e-commerce
benefit expenses and are typically around 13-15% of
logistics markets in more-developed countries such as
revenue. By increased scale, this figure can be reduced
the USA. Below are some of the key challenges within
to around 9–10%. Therefore, the EBITDA margins for
the e-commerce logistics market in India (and the
the e-commerce logistics business can potentially
logistics market in general).
expand from close to 10% to as high as 25%.
• Freight timing. With an average delivery time of 3 to 4
Analysis for a leading e-commerce logistics player in
days, India lags significantly behind the USA (by 1
India suggests that this market can support a
day). As customers’ needs for faster logistics
valuation of multiple USD billions
increase, service providers must solve several
One-year forward EV/EBITDA3 multiples for publicly challenges, especially in the last mile where delays
traded logistics companies in India have varied between are driven by poor pin code mapping and, as a result,
15x to 50x over the past 5 years, with the median being a higher requirement for nearby landmarks.
around 30x.
48.3 49.5
One-year forward EV/EBITDA multiple
46.5
43.8
41.6
35.1 37.7
25.3
23.6 22.3
16.7 16.6
14.8
14.7
FIGURE 6: ONE-YEAR FORWARD EV/EBITDA MULTIPLES FOR SELECTED PUBLIC LOGISTICS COMPANIES IN INDIA, FY2014–FY2019 (POST-
SCALE EFFICIENCIES) [SOURCE: ANALYSYS MASON AND PUBLICLY AVAILABLE INFORMATION]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
Average freight
3–4 days 1 day
timing
Travel range
300km 600km
(per day)
FIGURE 7: COMPARISON OF THE PERFORMANCE OF THE LOGISTICS INDUSTRY IN INDIA AND THE USA IN THREE KEY
AREAS [SOURCE: ANALYSYS MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
4
3-8.5% 1% 60-65%
processing fee investment 3 growth
charged amount charged
2
‘view only’ access to escrow
accounts for monitoring and
reporting purposes 1
Loan funding
for disbursal 0
2019 2024
Escrow accounts FIGURE 2: P2P LENDING MARKET SIZE, INDIA, 2019 AND 2024
maintained with a [SOURCE: ANALYSYS MASON, 2020]
bank operated by
bank promoted
Trust P2P lending platforms are more likely to collaborate
Principal
and interest than to compete with traditional financial institutions
repayments
Borrowers Lenders
(individuals, small (individual investors, A combination of the liquidity crunch in the retail loan
business owners) institutions) segment and the reduction of credit availability in the
traditional NBFC space has resulted in growth in the
FIGURE 1: P2P LENDING MECHANISM [SOURCE: ANALYSYS MASON, 2020]
number of borrowers using P2P lending platforms.
This pool of borrowers mainly consists of individuals
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
and MSMEs. Traditional banks may not necessarily be automation, analytics and artificial intelligence (AI) to
targeting borrowers that require smaller loan amounts process loans more quickly and to conduct a
and shorter duration loans or that have no credit thorough analysis of the credit worthiness of
history/low credit ratings. P2P lending platforms are borrowers. This will enable them to keep default
therefore not expected to compete with traditional rates to a minimum.
lending institutions. However, in the long term, the P2P
lending market in India is expected to mimic that in • Diversify their product portfolio and expand into
developed economies in terms of the relationship other segments. Expanding the product portfolio to
between P2P players and banks/NBFCs. For example, include various loan categories such as personal
in the UK, banks such as British Business Bank have loans, educational loans, MSME loans, property
enabled established P2P players such as Funding loans and automotive loans can help P2P lenders to
Circle by providing direct funding for small businesses expand their foothold in the market and gain market
via P2P platforms, with caveats on borrower eligibility. share.
Faircent currently dominates the supply side of the • Explore new business models. P2P players could
P2P market in India explore new business models such as setting up a
fund in which lenders could invest capital for a fixed
The P2P lending industry was unregulated until rate of return. The fund could be operated by the
2017–2018, when RBI started to classify P2P players as lending platform, which would diversify the lending
NBFCs. The supply side of the P2P lending market in risk across multiple borrowers. This may help
India has grown significantly, and 21 players have been players to attract more risk-averse customers and
registered with RBI as of July 2020. gain market share.
Faircent currently has the highest market share Critical success factors
(40–45%) and has raised approximately USD9.32
million so far from marquee investors such as J&M
Financial and prominent domain leaders such as Using innovative technology solutions
Muthoot Fincorp and Das Capital. i2iFunding, another
top player in the industry, has received a total of around Diversification of product portfolio and
USD1.3 million in funding; it raised around USD0.23 expansion into other segments
million in June 2019 from SucSEED Venture Partners.
The Mumbai-based P2P platform, LenDenClub, raised Exploring new business models
USD1 million in a pre-series A funding round in August
2019. FIGURE 4: CRITICAL SUCCESS FACTORS FOR P2P LENDING
[SOURCE: ANALYSYS MASON, 2020]
An overview of the main players in the P2P market in
India is given in Figure 3. In summary, the P2P lending market in India is still
very nascent and the business models are still evolving.
There are a few critical success factors for P2P
P2P players are focused on gaining market share by
players
having more borrowers and lenders signed up to their
There are three main ways in which that P2P players platform. Players will need to adapt to customers’
can boost their chances of success. demands while managing the risks of the business as
the regulatory environment develops because
• Use innovative technology tools. P2P lending players customer service is the key to success.
can explore advanced technology solutions such as
Player Interest rate (p.a.) Loan amount Repayment tenure Registration fee
Faircent 9.99% and above INR10 000–5 lacs 6–36 months INR500
Lendbox 12% and above INR25 000–5 lacs 6–24 months INR500
I2iFunding 12% and above Up to INR10 lacs 3–36 months INR100
OMLP2P 10.99% and above INR25 000–10 lacs 3–36 months INR100
i-Lend 15% and above INR25 000–5 lacs 6–36 months INR500
LenDenClub 6.5% and above INR25 000–5 lacs 3–24 months INR750
FIGURE 3: OVERVIEW OF THE MAIN PLAYERS IN THE P2P MARKET, INDIA [SOURCE: ANALYSYS MASON, 2020]
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
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For more than 30 years, our intellectual rigour, We are respected worldwide for the exceptional quality
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
150+ due-diligences of Internet assets in South Asia, South East Asia, Middle East, Africa,
1 and Europe over the last couple years
3 First port of call for diligence of Internet assets for marquee investors globally
• We have conducted 10+ full commercial diligences of horizont al ecom m erce m ajors in India and South
East Asia region
E c om m er c e
• In more recent years (post the market changes on horizontal ecommerce), we have also conducted 5+
diligences as well as market scan of v ert ical focussed ecom m erce players
• We have been advisors to marquee PE funds and financial institutions on 5+ com m ercial
Hyp er l oc al
diligences of leading hyperlocal delivery players in the grocery and food deliv ery m arket
d el iver y
• We have diligenced the leading players in grocery and food delivery twice in the recent past
• We have conducted full commercial and technical diligence of multiple players across the
Con ten t video and music content value chain (from producers to distributors/streaming assets
in cl u d in g O TT • We have also supported leading m obile operat ors in the region in developing their
C o nt e nt a nd OT T s t ra t e g y
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> ANALYSYS MASON MONTHLY | OCTOBER 2020
Rohan Dhamija, Partner, Head – India (South Asia), & Middle East
Rohan has over 15 years of experience advising investors and corporations across the telecom,
media, and digital/internet industries. He has worked with clients across 5 continents, and currently
serves as the Manging Partner for our India, South Asia, and Middle East practices. He has led a
majority of the firm’s transaction advisory work in the internet and digital sectors, and manages
some of the firm’s most important relationships in that space. Additionally, Rohan’s expertise
includes board-level strategy and transformation topics across the broader TMD spectrum.
Siddharth Thakkar
Siddharth over four years of experience as a management consultant in the Telecoms, Media and
Technology sectors with a regional focus on MENA and South Asia. His areas of expertise include
transaction advisory, market sizing, corporate strategy, go-to-market strategy and spectrum
acquisition. He has advised clients across the TMT value chain, including telecoms operators,
tower companies, equipment manufacturers and financial institutions.
Shashwat has over three years of hands-on experience in the technology and telecoms domain.
His experience spans transaction advisory for leading private equity clients and financial
institutions on e-tailers, cab aggregators, tower companies and data centres as well as business
planning, bidding support, go-to-market and commercial strategy for mobile operators and tower
companies.
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