How do Big Budget OTT Shows make money for these platforms?

Hello Hello, How are you? I am Vipul and I am back with your weekly dose of Leeds1888, where we talk about the insights on the business of Media and entertainment in simple and understandable terms.

I've been noticing you silently enjoying my content, but I have to say, it's time to break that silence and let me know your thoughts!

We're like a big family here, right? And in any family, we need to communicate and support each other. So, I'm counting on you to give me your feedback and suggestions. Who knows, your input could be the spark that ignites the next big disruption in the media and entertainment industry!

Speaking of disruption, have you heard the latest news? Big budget shows are now having their exclusive world premieres on OTT platforms. It's a game-changer for the industry, and I can't wait to hear your thoughts on it. So, let's dive in and discuss all the juicy details!

Big-budget shows, movies, and documentaries are ditching the traditional premiere venues and opting for OTT platforms instead. These platforms are either buying exclusive rights to independent productions or funding their own shows - it's wild!

But the big question on everyone's mind is, does this make sense from a business standpoint? Is it profitable? Well, fear not, my friend, because today we're going to do a fun case study to figure it all out! So grab some popcorn, get comfy, and let's dive into the world of streaming entertainment.

Before we jump into the fun stuff, let's take a moment to appreciate the sheer scale of the OTT platform industry. According to my buddies at Statistica, these platforms are raking in revenue growth of a whopping 10.01%, and they're projected to hit almost $460 billion by 2027. That's some serious dough!

Now, when it comes to funding a project, these platforms have a few options. They can pay everyone involved and then hope to make a profit based on the show's performance. Or, if they're feeling fancy, they can bring in big-name directors or actors and work out a profit-sharing arrangement along with a fixed fee.  Alternatively, they can simply buy the distribution licence (which could be exclusive worldwide, just for OTT, or non-exclusive) from a production house or studio and start streaming the content. This is just the tip of the iceberg when it comes to the purchase and production side of the business. Are you ready to on dive deeper?

The OTT platforms  typically employ a revenue model that relies on either subscription services, advertising during streaming, or a combination of both. It’s also interesting to understand the way they calculate the revenue made per show. Now imagine that an OTT charges 10 dollar per month and has 100k subscribers active monthly. Therefore, the total revenue per month is  $1 million Dollars. The platform will calculate the number of minutes watched by these 100k subscribers during the month . Let’s say on an average a person watches 60 minutes of content so effectively the total minutes watched per month  on the platform is 6 million minutes. Now suppose a hit show got 1 million minutes of watch time in a month. It means roughly the revenue of that show was 166k (Total monthly revenue divided by the total monthly watch time (in minutes)  multiplied by the  total watch time for that particular show).  

But here's where it gets really cool - these platforms have access to a ton of viewer insights through the data they collect while we binge-watch our favourite shows. They know what kind of content we're into, when we like to watch it, our age and gender, how long we stick around for each episode, and even our preferred formats. This analytics-driven approach means that they're not just guessing which shows to buy or produce, they're using real data to make informed decisions. And that, my friend, is how they minimise the risk of losing money on bad content selection and streaming. Isn't that wild?

You may think that I lost track of the subject by  getting into the business of OTT platforms rather than analysing how shows make money through exclusive OTT releases. No! Absolutely not ! I was just setting the context for you to understand how an OTT platform would make money for a show through streaming.

We all know that the show ‘Sacred Games’ was a massive hit on Netflix. Riding on the success of Season 1 , the OTT platform went all guns blazing with the season 2 and invested around 100 crore Indian rupee or $12 million dollars on the production. The show streamed on 14th August 2019 and got massive viewership. The season 2 was 400 minutes long . Around 2019-20 the monthly watch time for per view was around 20 hrs or 1200 minutes. During that period there were around 5.5 million active Netflix subscribers. For the sake of keeping the calculation simple, we assume that monthly subscription per user was 149/- rupee or $2 dollar  (by the way they launched this mobile only  plan during this period)  

Now check this out - During that period there were around 5.5 million active Netflix subscribers in India and Netflix has added almost a million users every quarter from then on in the year 2020 ! Since Netflix doesn’t reveal their viewership data for individual shows, let's try and do some quick maths to figure out how much Sacred Games-2  might have made for them.

Now according to some estimates the total worldwide viewership of Sacred games 2 has been over 20 million. So if we count 400 minutes of watch time per viewer, the show recovered its cost and made much more for the platform . 

Let's face it, OTT platforms are stealing the limelight for the big budget content producers. 

For viewers, watching a show on an OTT platform not only saves time but also provides convenience and comfort. Just kick back and enjoy the show at your own pace. It's no wonder why more and more viewers are turning to OTT platforms for their entertainment needs.

What are your thoughts on this? Join the conversation on Twitter and let us know! Tweet me @iamvipulagrawal

Let's move onto my top news picks of the week

THE BIG NEWS on News Media !

UNESCO recently published a Global report  that finds  the whole business model of News Media Broken and flags that  our fundamental right to information is at risk. It’s a very important and alarming report and I suggest you read it and let me know what you think.

Recently, I came across the Variety500 global list of the most influential leaders in the media industry worldwide. It was disappointing to find that although India is one of the biggest content consumers globally, the list only includes 8 Indian leaders, compared to 331 from the USA and 47 from the UK. This highlights the need for reflection and action in India's media industry.

As my thoughts come to a close, it's time to wrap up this week's newsletter. Until next time, this is Vipul signing off. Stay curious and keep exploring!

Thanks

Vipul