Jai Maroo, director of Shemaroo Entertainment, is in charge of expanding the company’s digital distribution platforms and guiding its tech-driven initiatives within the entertainment space. He tells Vinita Bhatia why OTT and TV will continue to co-exist despite cord cutting
There is lot of talk about cord-cutting. Do you buy into this theory?
One big theme that I found emerging at various industry events and trade shows this year, in the conversations I had, is about TV not being dead. While we like to talk about cord cutting and how Netflix and Hulu are killing TV, the recent talk has been about the fact that actually TV is not dead. All the numbers back up the fact that while OTT is growing, TV viewership is not significantly decreasing. So, the two continue to co-exist. In many cases, they feed off each other. That is an interesting fact.
Has this come as a surprise since popular inferences seem to be to the contrary?
It is in the interest of OTT platforms to talk about how more people are cord cutting or that the new generation only consumes Netflix and YouTube and doesn’t need TV anymore. If you look at some of the reports, like Mary Meeker’s Internet Trends Report 2016, you will realise that it is not the case.
According to studies released on TV consumption data and revenue in the last five years, paid TV’s revenue has not significantly shrunk and the subscriber base has decreased by only 4-5 percent. A 5 percent decrease in subscription in five years is not exactly a massive wave of people running away from paid TV to OTT. It completely belies the theory. Yes, OTT has grown tremendously. Netflix and YouTube have, of course, added millions of subscribers in the meantime. But, clearly, it is not fully at the expense of TV. Paid TV watch time hasn’t gone down significantly either.
Do you see this trend across various geographies?
This was primarily US data, but I heard similar conversations about European, especially UK, markets as well. Obviously, for India, we have always said that. Digital is growing massively and I have no doubt that a lot of consumption will happen. TV, however, is very much growing. For the next 5 to 10 years, TV is clearly, to us, an easy-to-predict, safely dependable secular growth story.
At the same time, OTT is emerging very strongly. There was a time when OTT was merely add-on revenue and TV was the main revenue. OTT, at least in the US, is significant enough by itself to justify certain investment.
Not many Indian companies have been able to monetise OTT yet. Are they investing in it in the hope that once the digital landscape becomes clearer, they can figure out the revenue streams?
It will take some time for the backend work flows and equipment to come to a level where it can really spread out.
By that time, technology would have leapfrogged to something new, don’t you think?
That’s always been the case; the technology evolution is getting faster. Take the case of the amount of time it took from VHS to VCD, VCD to DVD, and from DVD to Blu-ray – it kept getting smaller. The question is how fast is consumption evolving? The pace at which we saw the shift to VCD was very different, as compared to the shift from Blu-ray to other formats. The same thing will probably happen with HD to 4K or 8K, especially in India.
In the US, for sports and for certain premium content, 4K is the norm. YouTube now has 4K support built in and few other platforms are rolling it out as well. And the hardware is starting to reach the kinds of numbers where you could see some level of adoption. The general mood everywhere is that 4K is a more realistic trend than virtual reality (VR). We have no idea where or how VR will evolve but the same questions were being asked.
Coming to Shemaroo, the company has evolved dramatically—from a book library to acquiring film titles.
Yes, our first big jump was becoming a VHS label in the 80s. We then started exporting VHS cassettes to Pakistan, the UAE, and Sri Lanka. The second big jump came in the early nineties. Looking at global trends, our MD, Raman Maroo, flipped the business model. He said that we should stop thinking of ourselves as a distributor of content but rather a content house. So we started owning and aggregating content as required. The long-term view was to look at content consumption across any screen. So, we got into cable and broadcast syndication. As Shemaroo’s big play was to get content for the emerging cable and satellite eco system, we became a syndicator of content.
To flip any business model, a very robust backend is needed. How did Shemaroo get the right kind of technology early in the game?
There are couple of parts to it. One is that, as part of his travels, Raman Maroo witnessed various international trends closely. He saw that cable and satellite TV in the other parts of the world were better developed compared to that in India. Looking at that, we knew it was a matter of time before it would enter Indian shores. Liberalisation was just beginning and and around 1993, Zee had started its feed from Singapore. Similarly, Star Plus was also just starting out.
Then there are was the technology bit, beginning with the broadcast technology evolution. Our first step was to build content for it, where we did an extensive amount of work. This involved working with other post-production facilities as well as building some capacity of our own to handle different types of formats. We built the team and capacity to understand what broadcasters required.
Cable was easy in that sense. The default playout mechanism for most cable operators was the VHS cassette. What was, however, required was the wherewithal and foresight to go to producers and say this is going to become a legal revenue stream, so let us build it out for you and invest in the cable rights.
Similarly, we invested in satellite rights and pay TV rights with the confidence that consumption would evolve, and channels and a satellite pay TV ecosystem would emerge over the next few years. As a family, we invested in understanding broadcast mastering.
So, we didn’t have to crack the entire technology puzzle. We just had to know what were the two most commonly used broadcast formats were. If we could supply those, whoever came into broadcast would want one of these pieces. If you have that capability, the rest is doable.
At the end of the day, the rights part was the more difficult bit because we had to build out that legitimate revenue stream. We had to convince producers that we were building out a legitimate revenue stream for them.
What happened next?
We built out the content bank and initially became one of Sony Entertainment Television’s (SET) largest suppliers. Over a period of time, SET could buy from multiple people and we could sell to multiple channels. Today, we sell to virtually every broadcaster. And we have a significant revenue stream across channel types. So it is not only movie channels, we sell to music channels and news channels; cable guys also license from us.
We still sell to Doordarshan, so we do terrestrial TV rights as well. The way the model is today, we are fundamentally capturing revenue across any format of consumption other than theatrical. In the case of TV, we are suppliers to broadcasters. However, for digital, DVDs, and other revenue streams, we are distributors of the content. We also supply to Hotstar, Spool, Hooq, Netflix, iTunes, etc.
Which of these verticals are most viable currently?
The viability is different in every vertical as each of them has a strategic longer term plan. Hotstar has a certain strategic plan for which it is investing money and our viability is not tied to their viability. Our viability is consumption based in some cases; in other cases, people are also paying us for future consumption. The deals are not typically revenue shares; they are often on fixed fee or minimum guarantees, especially when a platform is just starting up.
In certain cases, we also work on fixed-fee models for small license periods. The idea is that ultimately each of these as a service is growing. Therefore, its own consumption will keep growing. What is important right now is for us to be present and ride that consumption and to learn from it. So we have entered mobile, we have entered the internet. There was an IP TV cycle that went boom then bust, but we participated in that.
What are the various broad business verticals that Shemaroo is involved in at the moment?
At the heart of the business model, we are a content library. Content comes into the library in two forms—one is perpetual ownership, where we have created it or bought out the underlying asset, and second is the limited ownership rights or aggregation rights, where we purchase medium-specific, territory-specific or period-specific rights. The common business model is to license in five-year cycles for a specific medium. We have also built out the model to buy-out assets. There are times when people are willing to let go of the underlying asset itself.
Managing monetisation is complex. Today you have to worry about what format you have to archive the content in , how to keep it alive for the next 30 years, should it be converted into 4K, and what should you do about YouTube, iTunes. With so many revenue streams emerging, there are many different ways of monetising content.
Are you also creating original content in terms of film production?
We do film production on a limited scale since it is not a huge focus area for us. We are not trying to be a like an Eros or UTV doing 18-24 films in a year. Our aim is to do one film a year. In the last nine years, we have done six films—two in Hindi and four regional movies. There is also animation content that we do; we have done seven animation films during this period.
The reason for doing fewer than planned films is that there is a different risk profile. The way we have built up our business model, our aim is not to become a big producer of films. We produce films when we feel there’s a project that we can back, hedge the risk against, and fits into the rest of the monetisation that we have built.
For instance, we made a film called
Hunterrr, which involved four partners. We felt it was a very good film from a digital and DVD point of view. There was a lot of distribution strength and we felt we could market it really well through the digital media.
Shemaroo has a legacy of taking risk but production seems to be one area where you seem to be hedging your bets. Why?
Our business model is built on taking risks. One risk is trying to get into a new area of consumption. You test the waters, and then you change the math accordingly. The other part of this business is about managing risk and volatility. There was a point when we participated a lot in new films. That, over the years, has stopped because new films now are a highly volatile portion of the business. For us to buy content, we have to hit a certain IRR benchmark. The premise of the business model is that films have a very long consumption life.
What is the roadmap for Shemaroo for the next three years?
There have been two to three ways we have been expanding ourselves. One is look at every new emerging format of consumption, which we have been doing for the last 20 years as well, and try and have a play in it. That is how we got on the mobile, IP TV, OTT, and the internet bandwagons. We partnered with YouTube in 2009 when nobody had any idea how this platform would emerge. We got there early and learnt and grew along with the platform. We are expected to touch 700 million users in the next five years.
Smartphone penetration is growing and is expected to reach 500 million in the next five years; digital advertising is growing. It is expected to be 30 to 40 percent CAGR over the next five years according to some industry reports. All this has a big effect on how consumption is changing. For us, the budget smart phones are as important as the top-end smart phones.
From the consumption point of view, even the sub INR 5,000 smart phone is a perfectly capable consumption device. And it is changing the dynamics of our consumption. Globally, 30-35 percent consumption comes from non-traditional form factors. In India, that number is more than 45 percent. We are technology and platform agnostic. Our bet is that overall consumption is increasing.
With broadband infrastructure coming in, whether in the form of 4G or the national optical fibre network, consumption will come even faster, resulting in acceleration in revenue. There is a huge paying ecosystem that is being built on the back of telecommunications companies that includes the on-deck and the off-deck models. The other revenue stream is internet services and OTT services.