Star India's online dare

The day I meet him, Uday Shankar, 53, is pacing up and down his sprawling new 37th-floor office in Mumbai’s Lower Parel media district. At first glance, the place gives away a man who doesn’t like sitting. There’s an Apple desktop mounted on a standing workstation and a couple of seats for visitors pushed to a far corner. Pausing briefly, the CEO of Star India, India’s largest television business, reveals the epiphany that’s keeping him on his toes. “We are classified as a broadcasting company,” he tells me. “But I don’t see us as one anymore. We are creators of content. We should be present wherever our customer is.”

Shankar’s restlessness, or even anxiety, is not without reason: Worldwide, digital platforms have unleashed havoc on traditional broadcasting. Research and analytics firm eMarketer says last year in the U.S., the daily time spent on non-voice mobile and digital activities (5.16 hours) eclipsed TV viewing (4.31 hours) for the first time. In India too, TV viewing has plateaued at three hours a day for the past several years. The usurper: YouTube, and online videos in general.

Digital analytics site comScore suggests that in the last three years, the viewership of these videos in India has nearly doubled, reaching 59 million people who consume seven hours of video content in a month on average. While China’s 447 million viewers watching over 11 hours of videos a month dwarfs that, the report says it is “critical for [Indian] broadcasters and marketers to understand their target audiences, and have visibility across the online video-viewing marketplace”. YouTube bosses over this, with a 55% share.

Anil Wanwari, founding CEO of industry watcher Indiantelevision.com, says the days of viewing television shows at an appointed time are over. Analytics helps video portals generate real-time viewing suggestions, making them way stickier than TV can ever be. In the U.S., Netflix and YouTube account for 30% and 20%, respectively, of all Internet traffic. Here, says Shubham Majumder, media analyst and executive director at Kotak Mahindra Bank’s investment banking division, “YouTube continues to be the biggest online destination, given the lack of any other credible player.”

A former senior executive at Sony Entertainment Television, who has seen YouTube’s presentations for advertisers, says it pitches itself as “one of India’s top three broadcasters”, rather than a video portal. (Also see ‘The Future Is Now’, Fortune India, June 2013.)

What makes YouTube even more formidable is that while competing with them, it also gains from being the default video platform for most Indian broadcasters. Star India’s YouTube channel, for instance, is among the top 10 in the country, and fetches YouTube nearly 4.5 million viewers.

Though revenue data aren’t available, YouTube’s progress is evident from the fact that several advertisers now produce ads specifically for it. In other words, YouTube has already begun eroding the primacy that broadcasters enjoy with advertisers. Now think of how the Internet is wresting away business from newspapers and magazines, and you will see that’s the future Shankar wants to avert. “We want our viewers to come to us directly,” he told Punit Goenka, managing director and CEO of Star’s biggest rival Zee Entertainment, when the two caught up on the sidelines of a conference barely a week after our meeting. To make that happen, he has unleashed the biggest online push in the history of Indian broadcasting.

It started with starsports.com, tested in December 2012 and taken live during the ICC Champions Trophy in June 2013. In January 2014, the portal licensed the online rights for the IPL from Times Internet, triggering a windfall: nearly 30 million unique visitors and 55 million page views. Crucially, the company claims it was able to sell online ads for the IPL without discounting or offering them as a bundled throw-away to its television advertisers. Though it won’t disclose how much money it made, it says the revenue was “in crores”.

The launch of Pro Kabaddi in August—with which Star sought to dent the over-dependence on cricket in India’s televised sports business—shattered even the IPL’s viewership records. The opening night of the league saw 22 million visitors, 10 times the number for the opening match during the FIFA World Cup. Shortly before we went to press, it reportedly announced plans to stream the 2015 ICC World Cup matches in four Indian languages. “We chose to push through sports, because we knew it would lend itself to the new medium and its young demographic,” says Shankar.

Emboldened by its early success, the company is now planning a subscription-based entertainment portal (codenamed hotstar.com according to some who worked on the project). This is supported by 360-degree digital operations—a first in Star’s entire global network. Shankar won’t reveal costs, but the former Sony executive says it could easily touch $100 million (Rs 600 crore) to $125 million over five years.

That’s a lot of money to burn—and it’s not clear if it will be enough. Forget about the infrastructure, programme rights can be very expensive. Think of Star India providing risk capital to an untested idea, in the hope that it’ll work. Much will depend on how long it can afford the cash burn. In theory, given that it is a wholly owned subsidiary, Star India can throw limitless capital behind its shiny new idea, but business always has its own compulsions.

Chief operating officer Sanjay Gupta argues that the time to invest beyond the idiot box is now. “Lack of strong destinations like Netflix and a growing, new, set of mobile users demand a new online model.” He reasons that Indian TV viewing hours have stagnated because most Indian homes have just a single television set, compared to two or three in the U.S.. Even if incomes go up, television sets won’t double easily, as most Indian homes have just one or two rooms. As such, mobiles, tablets, and computer screens will emerge as the second or third screens. According to comScore, Star India already has a lead in content stickiness, with viewers spending an average 38 minutes on its website. (IndiaCast, a joint venture between TV18 and Viacom18, is second, at 27 minutes.)

However, the company has history against it: Its previous two attempts at making an online charge ended in disaster. The first came during the dotcom boom of 2000, when Star bought entertainment news portal Indya.com. The second came around the time Shankar joined in 2005-06, when Indya.com was revamped with interactive features. The company doesn’t share how much money it spent, though Indya.com made quite a splash in its day. Today, the portal doesn’t exist. Poor bandwidth, high data charges, and low Internet penetration made it an idea before its time. Shortly after its second coming, CEO Peter Mukerjea and COO Sameer Nair jumped ship with a number of Star India veterans, some say nearly capsizing it.

Some of those issues still exist: Internet access, though relatively improved, still has a long way to go. Data charges are still quite high, especially on the mobile platform, and speeds are still low.

Finally, there’s the question of crossing swords with Google, which owns YouTube. As NewsCorp founder and Star TV owner Rupert Murdoch’s long-running feud with Google proves, that fight seldom ends happily for the custodians of legacy media. For years, Murdoch has accused Google of “kleptomania” and called it a “parasite” leeching off others’ content. In 2012, he even took his British flagships The Times and The Sunday Times off Google’s search index—only to bring them back this September, confirming the inescapable clout of Google’s spiders in the media business.

Shankar, who trained as a journalist, was thrust into his role after the mass exodus led by Mukerjea. In an industry that’s fairly young—India’s television boom took shape in the 1990s—he is a senior statesman. (Goenka is 39 and inherited the mantle from father Subhash Chandra.) But in his seven-year tenure with Star India, he has developed a reputation for breaking rules with the gusto of a greenhorn.

Some of his moves are now legend, none more so than his decision to divorce Balaji Telefilms, which churned out blockbuster soaps for the company’s flagship Hindi general entertainment channel Star Plus but made it over-dependent on female viewers. He also axed the megahit quiz show Kaun Banega Crorepati—and with it, Amitabh Bachchan—choosing to back Aamir Khan’s Satyameva Jayate, a talk show with a social-reform agenda. Parallelly, he opened a clutch of regional channels. Then there’s the push on sports: cricket, of course, but also kabaddi and football (with the Indian Super League), opening up a lucrative, young, male viewership.

Shankar’s moves lifted employee morale and advertiser confidence in the once beleaguered company, helping it become a Rs 4,000 crore (revenue according to media reports; Star India is not listed) juggernaut. But detractors point out that the tag of India’s most profitable broadcaster has eluded him. That belongs to Goenka’s Zee, a listed firm with revenues of Rs 2,685 crore for the year ending March 2013, at an operating margin of over 37% (excluding other income). The figure for Star India: less than 15%. Investing online is a key part of Shankar’s plan to create more value in the long term.

Zee itself is taking just the opposite route. Goenka remains circumspect about the online play—like many others in the industry. By way of exposure to the medium, the company runs a platform called Ditto TV, whose 250,000-plus subscribers pay anything between Rs 10 and Rs 1,000 to view a bouquet of partner channels. It also has the mandatory presence on YouTube, as well as Netflix. Goenka says online revenues are still small, and there’s a lot to extract from traditional channels. For instance, Zee has seen healthy revenue growth distributing its content overseas.

Other broadcasters seem lethargic about shaking things up. Most are torn between treating YouTube as a threat and a source of easy money: The portal pays broadcasters an upfront syndication fee and also shares 55% of the ad revenue. (Advertising on online video platforms has grown to 6% of total television industry revenues of about $5 billion.) To a business manager, this is low-hanging fruit at no extra cost.

But there’s another way of looking at this. In the traditional cable network system, cable operators charged broadcasters a fixed fee, and the latter made money by selling ads based on the premiumness of their content. With YouTube, although broadcasters don’t have to pay to beam the content, they end up sharing a significant portion of their advertisement revenue—irrespective of the quality of the content.

Raj Nayar, chief executive at the Network18-owned general entertainment channel Colors—which has in the past battled Star’s Hindi entertainment flagship Star Plus for the top spot—feels companies lack a strong incentive to commit big money online. “All broadcasters should take a decision to not give content to YouTube,” Nayar said at an industry panel discussion. “Only then, perhaps, can their Internet strategies take off.”

Some have tried: Nearly a year ago, Sony decided to stop giving its entertainment content to YouTube and launched its own portal Sony Liv. In June this year, it launched livsports.in, in a bid to cash in on its rights over the FIFA World Cup. But according to a senior executive at a consulting firm which advises broadcasters, Sony is going back to YouTube, as Sony Liv is taking longer than expected to establish itself. That ought to be a cautionary tale for Star.

Till 2011, the thought of technology upheavals would probably have spooked Star. Those were early days for COO Gupta in the company, when he spent time at its office in Andheri in Mumbai’s western suburbs, where most of the content production got done amid utter chaos between the production and editing teams. There was a running joke in the office that tapes carrying content to be aired should be sent in ambulances, so that they get priority through the city traffic. Executives who edited and signed off on episodes complained hoarse that they had to receive tapes or discs at home at odd hours so that shows could be aired on time.

Amid all this, the company announced that it would move to a high-definition (HD) platform. That meant additional investment in HD equipment—even though it was not clear whether enough customers wanted the service to justify the costs. But Gupta felt HD was the future, and he hunkered down with a “Go Digital” campaign that would digitise the entire production and transmission chain. All content would be shot on digital HD camera and transmitted to a central server, from where it could be downloaded by anyone authorised by the company and aired directly. Production and editing executives were given iPads, replacing desktops and laptops. There would also be a comprehensive content management platform including a plan for SAP-like enterprise software to keep track of everything that moved in the system. That meant no more recording tapes, no discs to be ferried around town, no inventory to take stock of, and no disturbing spouses at home.

The idea was so radical that when the proposal was first sent to Star’s global headquarters, it was returned with one question: Why hadn’t anyone else in the Star universe done it before? Later, when the company chose Mumbai-based technology firm Prime Focus’s Clear platform to host its content, Rupert Murdoch’s son James personally checked it out. Ramki Sankaranarayanan, head of Prime Focus Technologies, says, “It was a long selling process, as Star India was going to be our first big client to buy the entire suite. Before them, no one believed an Indian product could offer so many features.”

The India team eventually convinced the Murdochs, and Star India says the digital drive helped cut costs by 15% within 30 months of its implementation. The Clear software allowed Star to watermark its content to prevent copying, and tag and resize content (change its quality to suit bandwidth). It also helped producers find out how many characters had died in a long-running soap, or a programming head to rustle up content on a trending topic, at the click of a button.

More important, in many ways, the technology bought Star on a par with YouTube. Over 100 hours of content get uploaded on YouTube every minute—all of it digital. The portal doesn’t have to bother about the backend, freeing it to run the infrastructure and analytics to keep viewers engaged. By fixing the backend, Star too got some of that flexibility.

GUPTA SAYS there’s always the risk of getting carried away with technology without a clear focus on outcomes, which probably led to the undoing of the company’s previous online forays. To avoid that, there’s painstaking focus on what the customer really wants, instead of simply dumping all Star content online and waiting for the customer to find it. Ajit Mohan, the newly appointed head of the digital business, who earlier worked with McKinsey, is the guy responsible for that.

Shankar took an early call that the online business will be separated from the rest of the company by a Chinese wall. Programming and marketing heads couldn’t just unload shows on the website and walk away with a share of advertising revenues. Mohan had to buy their story. “It is wrong to assume that viewers will search and consume whatever they like,” says Mohan. “You can lead them if you have interesting content.”

Mohan’s biggest assignment has been tailoring the starsports.com strategy, armed with granular data on the Internet habits of Indians. What struck him was that users remained online for nearly 12 hours a day, but only intermittently consumed data. The insight: The attention span of online viewers was much shorter than TV viewers. Based on that, he decided to repackage the content for starsports.com. Of course, entire matches would be available with a five-minute delay, but a team of content editors was tasked with creating “zipclips”, or one-minute highlights. During IPL matches, a dedicated team of 25 published recaps every five overs while constantly updating the zipclips. Further, the content was streamed at 128kbps, keeping in mind the low domestic Internet speeds. Since the content was edited in real time, Mohan could also squeeze in advertising between highlights or clips and could play around with ad positioning on the screen. Such flexibility wasn’t available last year, when the IPL played on YouTube.

Shankar says it’s too early to speak about return on investment, but advertisers who have put money in YouTube in the past are willing to support it through this phase. Anita Nayyar, who heads online advertising agency Havas Media, says, “During the IPL, several companies demanded that some of their money be put online. That’s becoming the norm.”

What did not work out was Star’s plan to build subscriptions. Though a small number of viewers did pay to watch the matches without the five-minute delay, revenues were largely ad-dependent. Gupta says telecom companies are not making it easy to acquire subscribers, as data charges in India are still prohibitive. More than 85% of Indian mobile customers are on prepaid schemes, and 1 GB of Vodafone’s pay-as-you-go 3G could cost as much as Rs 4,000. For its entertainment portal, Shankar says the revenue models will range from exclusively advertising-driven to premium advertising-free content.

As a counter, YouTube is also building exclusive channels with specific genres of content, helping advertisers sharpen their targeting. In March, it also brought its subscription-based model to India, where channels with more than 10,000 viewers are allowed to charge a fee from viewers, a part of which is shared with YouTube.

“Eventually, viewers will come to us to connect with their favourite characters and stories,” says Gupta. The launch of 4G and more affordable data services will help. Till then, investments will flow to hook the viewers. Will the market reward the punt, or will Star India pay the price for being too adventurous? That’s playing next at a screen near you.