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Digital Media:Rise of On-demand Contentwww.deloitte.com/in

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ContentsForewordGlobal Trends: Transition to On-Demand ContentDigital Media Landscape in IndiaOn-demand Ecosystem in IndiaPrevalent On-Demand Content Monetization ModelsOn-Demand Content: Music StreamingOn-Demand Content: Video 8131520283435363

ForewordHemant Joshi4Welcome to the Deloitte’s point of view about the riseof On-demand Content consumption through digitalplatforms in India.Deloitte’s aim with this point of view is to catalyzediscussions around significant developments that mayrequire companies or governments to respond. Deloitteprovides a view on what may happen, what could likelyoccur as a consequence, and the likely implications forvarious types of ecosystem players.This publication is inspired by the huge opportunitypresented by on-demand content, especially digitalaudio and video in India. Our objective with this reportis to analyze the key market trends in past, and expecteddevelopments in the near to long-term future whichare likely to have a significant impact on companiesoperating in this space in India.Our endeavor is to provide a considered point of view onkey industry trends and developments in key sub-sectors.In some cases, we seek to identify the drivers behindmajor inflection points and milestones while in othersour intent is to explain fundamental challenges androadblocks that might need due consideration. We alsoaim to cover the different monetization methods thatthe players are experimenting with in the evolving Indiandigital content market in order to come up with themost optimal operating model.Arguably, the bigger challenge in identification of thefuture milestones about this evolving industry andecosystem is not about forecasting what technologiesor services will emerge or be enhanced, but in how theywill be adopted.Deloitte hopes that you and your colleagues find thispoint of view a useful stimulant in your strategic thinkingand planning.

Global Trends: Transition toOn-Demand ContentMedia consumption across the globe is increasinglyhappening in digital formats. The increase in thenumber of devices capable of supporting digital mediaalong with increasing internet access speed, hasprovided consumers with an option to access the mediacontent of his choice be it information, entertainment orsocial activity anytime, anywhere. Media consumption inthe US has shown tremendous increase and has seen asignificant jump from traditional media to new (digital)media. The rise of digital media players such as Netflix,Hulu, Amazon, Apple TV, Roku, and Boxee, etc. arechallenging the traditionally maintained supremacy ofthe television as the main entertainment hub.Mobile devices driving the digital consumptionOnline media consumption has shown tremendousgrowth over the past few years. Among the digitaldevices, mobile devices have taken over as the preferredmedium of consuming online media. The smartphonemarket has seen an unprecedented growth in the last5 years. Smartphone devices across the globe grew ata CAGR of 17% as compared to 9.5% growth in allmobile devices. Smartphones crossed 2 billion mark in2014 and are expected to reach 4.6 billion by 2019. Thisincrease in the number of mobile devices is making iteasier for consumers to access music and video contenton the go.In 2014, the smartphone mobile data traffic alonestood at 1.73 EB per month (69% of global mobile datatraffic), which is expected to grow 10-fold from 2014 to2019, a compound annual growth rate (CAGR) of 60%.Tablet mobile data traffic will grow 20-fold from 2014 to2019 (CAGR of 83%) to reach 3.2 EB per month. 1Figure 1: Global Monthly Mobile Data Consumption 9OthersSource: CISCO Mobile VNI report, 2015Digital Media:Rise of On-demand Content 5

The internet has been and continues to be a disruptiveforce impacting distribution and consumptionchannels for media. With better networks, coverage,and advanced technologies (3G, 4G / LTE) the dataconsumption across the globe has risen.Audio & Video drive the global digital mediaconsumptionMost of this data growth is attributed to differentdigital media especially the entertainment services likevideo, audio etc. Globally, video and audio traffic hasdominated the internet data consumption for someyears now. The devices used to access digital contenthave evolved in the last few years that have increasedthe array of platforms on which a user can stream audioand video content. Netflix share of internet traffic inNorth America increased further and accounted for 34%of data flowing to consumers during the peak times infirst half of 2014. 2 Over-the-top (OTT) service providerslike YouTube and Subscription-based digital contentproviders like Spotify have also acted as a catalyst in thegrowth of audio/video data streaming. The global audioand video traffic combined is expected to reach 82% ofall internet traffic by 2018.3Figure 2 : Video and Audio will generate 89% of Consumer Internet Data Traffic by 2018 (Exabytes permonth)7.021% CAGR 2013 - 172018File SharingSource: CISCO VNI report, 2014Marketers are shifting their advertising spendstowards digital mediaThere is a marked shift in consumer preferences towardsdigital media consumption as compared to traditionalforms of media which include TV, print press, and radio.People are spending more time each day on digitalrather than traditional forms of media. Data from the USand the UK have shown that in last 4 years, there hasbeen a significant increase in the time that people spendon digital media. 46The increasing popularity of digital media has providedfor a paradigm shift in the global advertising spends.Marketers are following the changing trend andincreasingly allocating their budget to digital mediums.Spending on digital media as a percentage of totaladvertising spend is expected to increase from 21%in 2010 to 28% in 2015. 5 It is further expected toreach 36% by 2020. This increase is mainly coming bycannibalizing traditional advertising mediums like print.

Figure 3 Actual time spent in minutes per day for an average adult (Minutes per ntSource: eMarketerFigure 4 : Change in global advertising media spend%age of Total12%17%24%Advertising PrintRadioSource: Deloitte AnalysisDigital Media:Rise of On-demand Content 7

Digital Media Landscape inIndiaIn line with global trends, the Indian consumer isincreasingly consuming the content on digital platforms.This trend is observed for all type of content includingnews (text), music (audio), or video. Increasinginternet penetration and mobile device proliferationand convenience of consuming the content anytime,anywhere are the key drivers for this trend.Rapidly increasing internet usersIndia added 43 million internet users (20.5% growth)from October 2013 to September 2014 and totalinternet users crossed 254 million 6 in September 2014.Out of these, 235 million 6users accessed internetthrough mobile devices. The growth in internet userswas seen both in rural and urban parts of India. Internetusers in rural India is expected to reach 138 million byJune 2015, while 216 million internet users are expectedto be in urban India by then.With improved networks, better access to internet,multimedia service-capable mobile devices andapplication development ecosystem, more and moremedia consumption would happen on digital platforms.India has around 300,000 app developers and is alreadythe second largest Android developer community in theworld after the US.7While the internet user base in India is growing at arapid rate, most of these users (75%) belong to the agegroup of less than 35 years. More than half of the appusers in India are aged between 18 and 24 years anda further 29% between 25 and 35. 45% of these usersreside in the top 4 metros. 8Figure 5: Indian internet users - age wise distribution37%38%16%6%3%15-24Source: vserv.com825-3435-4445-5455

Higher spend on entertainment services by youthOn an average, an internet connected user in Indiaspends 14% of his or her time and 17% of his or hermonthly spending on entertainment. Combined spendby an internet user on Mobile and Entertainmentincreased by 34% in two years from 2012 to 2014.Figure 6: Average amount spent per month by Indian youth ( 14355Personal Care GroomingCoffee Shops Fast FoodMobileOther Personal Expenses258Movies and EntertainmentSource: Hindustan Times Report 9In terms of media consumption, an average mobileweb user in India consumes about 6.2 hours of mediadaily which includes 102 minutes of mobile media and79 minutes of online (desktop) media consumption. 10Social media and entertainment (Music & Video) are thetwo activities on which the Indian mobile internet usersspend their time the most followed by games, generalsearch, and emails.Out of the total time spent on digital media by youths,about 21% of the time is spent on audio and videoentertainment. Spending per month by users on digitalmedia especially entertainment is expected to grow by2.5 times by 2020. A similar trend is expected for thetime spent on consuming the digital media services.Mobile Devices Driving Digital MediaConsumptionInternet traffic originating from mobile devices in Indiahas already surpassed the desktop internet traffic. Mostof the users are now accessing internet via mobiledevices. In rural India mobile internet users are set togrow at a rate of 33% from October 2014 to reach 49million by March 2015 and 53 million by June 2015.In urban India, this number is expected to reach 143million by March 2015 and 160 million by June2015. 11 The following table summarizes the currentinternet user base split as per device usage andapplication preferences:Digital Media:Rise of On-demand Content 9

Figure 7: Indian Internet users by device typeDevice Type and Total SubscribersTechnology700 million*2G164 million*2G/3GFeature phoneSmartphoneApplicationsData Consumption per month E-mail Social networking apps (e.g. Facebook, WhatsApp) Web browser apps All of above Mobile audio / videostreaming/ Shopping apps2 million All of above Mobile audio / video streaming/3GTablet - cellular10 millionDongle18.7 millionFixed Wireless14%gaming Shopping apps Reading appsEVDO/3G/4GWi-Fi/WiredDongle 8% E-mail Audio /Video streaming Lifestyle/social media websites All of above Mobile audio /video streaming/gaming Shopping appsSmartphone 43%Total Data Consumption: 95Petabytes per month* Not all subscribers are data usersSource: Deloitte AnalysisCurrent smartphone penetration in India stands at13.4% up from 10% in 2014. 12 As per the study doneby Deloitte across 25 countries, at 25-35% smartphonepenetration data growth gains further impetus andmore than doubles as compared to previous period. This10Feature Phone43%Tablet - Cellular 2%is mostly driven by the data hungry applications andon-demand services. India is likely to follow the globaltrend and point of 30% smartphone penetration will seetremendous data growth with even more adoption ofdata hungry applications / services on mobile devices.

Figure 8: Study performed across 20-25 markets particularly emerging 15200920102011201280% 444%31%25%18%15020%10%50210%-50200950% 2301520% 80910% 30201231%40% %30% 0%71%7440%South Africa20Japan20112012201320140%Mobile Data Consumption (Pb per month)Smartphone Penetration (% of Population)Source: Deloitte ResearchSmartphone shipments exceeded forecasts in 2014leading to the availability of increased potential mobiledata users. Average smartphone price in India in 2014stood at 135 and about 84 million smartphone unitswere sold in 2014. 13 The average smartphone price isexpected to fall over the next few years to 100 whilethe sales volume is expected to rise to more than 350units per year by 2020. However, 5-10% extra fall inthe prices may increase the sales and penetration morethan expected thereby contributing to even higher datagrowth.Rising data consumption with smartphonepenetrationWhile the proliferation on mobile devices wouldenable the digital media consumption, data prices, andanywhere connectivity would play equally important rolein shaping the digital media consumption habits amongIndian users. Average data price per MB on mobilenetworks has fallen significantly over the past fewyears; however, mobile data tariffs are likely to mirrorthe trends in 2G market where voice tariffs in India arestabilizing after long period of sharp falls.Average data consumption per user in 2014 was 688MB per user for 3G and 216 MB per user for 2G. On anaverage, a 3G user consumed about 3x data payloadsas compared to 2G counterparts. 14 Further, with highsmartphone usage and lower data tariffs, India hasalready started experiencing S-curve data growth andthis trend is expected to continue in the near future.Digital Media:Rise of On-demand Content 11

Figure 9: Projected smartphone penetration and mobile data consumption (in PB per month) for 142015201620172018Mobile Data Consumption (PB per month)Smartphone Penetration (% of Population)Source: Deloitte AnalysisWith more subscribers using faster access technologies,data would conse