This article first appeared in Digital Edge, The Edge Malaysia Weekly on June 12, 2023 - June 18, 2023

If you’re a Netflix subscriber, you might have already received a notification to set your household location for the account. This requirement, which is a crackdown on password sharing, has finally arrived in Malaysia and the few who have received it have expressed the intention to cancel their subscription altogether. Globally as well, users have expressed similar sentiments, putting into question the future of over-the-top (OTT) streaming services.

To top it all off, in the US, the OTT landscape — which is the largest in the world — is turbulent. The streaming wars have made way for inevitable consolidation; HBO Max and Discovery+ announced a merger in April to expand their content offering so that “it’s the place every member of the household can go to see exactly what they want at any given time”.

Already under immense pressure from compressed margins, loss of subscribers and thousands of job eliminations, streaming platforms are now facing a revolt — involving some 11,500 film and TV writers belonging to the Writers Guild of America — over unfair wages and the inclusion of artificial intelligence (AI) in the writer’s room. Screenwriters have been on strike for weeks now because streaming platforms are treating them as gig workers, resulting in lower pay for more output. 

The upheaval may be happening thousands of miles away, but is disconcerting to users all around the world. Viewers are already bracing for a reckoning as the strike will delay the airing of our favourite series.

The many setbacks notwithstanding, the fact still remains that continuing to subscribe to OTT streaming platforms makes perfect sense.

From a content standpoint, the different platforms have their own strengths, which is beneficial to users, giving them the autonomy to choose what they like. From an economic perspective, it seems much more reasonable than buying a costlier television subscription, especially since OTT content is on demand and can be accessed anytime, anywhere.

While OTT platforms in the West are trying to figure out a path to profitability, the market in Asia is ripe for the taking, say industry observers.

It is unclear, however, if this demand will result in significant profits as the challenge of turning a profit on content created remains.

As a relatively nascent market in comparison, the Asian OTT industry is still growing. In Malaysia, user subscriptions saw steep growth when the Covid-19 pandemic first hit in 2020, but when global lockdowns ceased and economies reopened, the industry underwent a minor corrective period that saw user churn, but it wasn’t drastic enough to have an impact on the revenue of OTT platforms.

Despite the normalisation, and consumers being inundated with alternative entertainment options, OTT revenues have managed to remain relatively stable, Jeremy Ho, associate partner at Ernst & Young (EY) Consulting Sdn Bhd tells Digital Edge.

The industry in Malaysia saw an increase of 2.2 million subscribers through 2020 and 2021. Subscription video on demand (SVOD) household penetration tripled from 7% to 21% over the same period.

In February, Hong Kong-based OTT provider Viu, which operates both ad-supported and paying tiers, said that it had 66.4 million monthly active users in 2022, an increase of 13% year on year, in a report in Variety. Paying subscribers increased by 45% to 12.2 million over the same period. The company’s revenue, a mix of subscriptions, advertising sales and content licensing, also grew by 45% y-o-y to US$206 million in 2022.

Chinese online video platform iQIYI’s 4Q2022 report said that total revenue was RMB7.6 billion, increasing 3% y-o-y. Net income attributable to iQIYI was RMB304.3 million, compared to a net loss attributable to iQIYI of RMB1.8 billion in the same period in 2021.

These numbers indicate that OTT streaming services are here to stay. A study by Trade Desk and Kantar indicates that within Malaysia, 40% of respondents are keen to maintain OTT usage post-pandemic, while 29% plan to increase OTT usage.

Citing Media Partners Asia (MPA), iQIYI country manager for Malaysia and senior director of the international business department Dinesh Ratnam says Malaysia’s user subscription saw a 40% increase and is projected to nearly double over the next five years. This growth will be driven by two things: convenience and pricing.

“Those who were new to streaming and started experiencing it during the pandemic stayed on because it was a convenient way to consume content. Pricing remains competitive in the region and it also plays a role in OTTs’ growth trajectory as we try to add more users, driven by those same fundamentals.”

Satellite broadcast provider Astro has also acknowledged a shift in the landscape and value in OTT platforms, prompting it to adapt its business and position itself as a streaming company, says Euan Smith, group CEO of Astro Malaysia Holdings Bhd.

The aspiration is to remain Malaysia’s main streaming destination, says Smith.

Anyone with a mobile or broadband connection can receive Astro’s services, and not just confined to those who install an Astro dish at home.

“In the era of streaming, we recognise the need to package our offerings to appeal to people with different lifestyles. Astro used to be a ‘one-size-fits-all’ product. This no longer applies; a single offer is just not how the market works these days. So, we’ve divided ourselves into three distinct content services — Astro, NJOI and sooka — to serve customers across all segments who have different budgets and needs for their entertainment.”

“Knowing the market potential for SVOD services, it was pivotal for pay-television operators like Astro to transform our business model to meet the changing consumption trends of consumers. Today, we are still in the business of aggregating the best of third-party content with our own, only now that also encompasses the best streaming apps,” says Smith.

Tencent-owned WeTV is the 11th premium streaming app to collaborate with Astro. Other streaming apps available are BBC Player, beIN SPORTS CONNECT, Disney+Hotstar, HBO GO, iQIYI, Netflix, TVBAnywhere+, Viu, WeTV and ZEE5, in addition to its own Astro GO app which is complimentary to all customers. 

Moreover, Astro’s set-top box integration of Netflix and Disney+ Hotstar has driven a new wave of growth for both players.

“Along with incumbents, new expansion from Astro’s own sooka brand and other players such as Amazon Prime Video and Max are expected to drive further industry growth. MPA projects the SVOD base to grow to 8.8 million in 2027, reaching 47% of Malaysian households,” he says.

Ultimately, retaining customers and keeping pace with the latest streaming technologies and devices will be equally important as competition continues to rise, says Smith. Platforms need to focus on providing a seamless user experience by leveraging technology and innovation.

“OTT players recognise this, which is why they actively partner with other players in the industry such as Astro, to offer bundled subscriptions that provide users with access to multiple services at greater value, and more eyeballs for their apps. This is especially important as many consumers are starting to get fatigued with paying for numerous subscriptions, as well as the inconvenience of searching for content across various platforms.”

Dhivya T, an analyst at MPA, concurs that collaborative services between incumbents and OTTs are a positive development for the industry. After a subscription growth peak in 2020 and 2021, while the growth may not be as aggressive today, the industry is still seeing expansion, nonetheless, facilitated by the ability of OTT platforms to integrate themselves with local distributors, such as Astro and Telekom Malaysia (via Unifi TV), as well as offering subscription bundles via telcos.

“In some way, even with a telco’s mobile data plan, OTT providers are always bundling their services [with that offered by telcos]. Platforms like Viu, iQIYI and WeTV allow people to watch South Korean and Chinese dramas affordably and there is also a free tier with ads.

“There’s definitely churn in terms of people going in and out of their subscription ... but the industry is clearly now moving to focus more on monetisation. Eliminating churn is key with new semi-annual and annual passes, more partnerships with telcos and pay-TV operators with sustainable bundles, new revenue streams like ads, more efficiency and content investment. 

“So purely focusing on subscriber growth is no longer the key metric; it is also monetisation and profitable subscriber growth. [Concurrently,] we foresee household penetration of online video services continuing to grow over the next few years in markets like Malaysia,” Dhivya says.

However, EY’s Ho says the deteriorating macroeconomic outlook will likely heighten the focus on value-for-money offerings and lead to consumers prioritising subscriptions that provide the most content and variety at the least to no cost, thus reducing their willingness to spend on subscriptions and creating a greater inclination towards advertising-based video on demand (AVoD) subscription plans.

“This phenomenon presented itself in the UK in 2022, where Netflix and Amazon Prime Video lost 800,000 subscribers between April and June 2022 as a result of the rising cost of living,” he shares.

There are overlapping challenges between OTTs in the US and in Asia, the main one being the way content is generated. The way Netflix has been producing shows is different from entertainment monoliths like HBO and Disney.

Netflix is steadfastly a tech company with data as its guiding principle. The streaming giant had around 232.5 million paid subscribers worldwide as at 1Q2023, which means it has extensive consumer insights into how much people are watching, knowing exactly where users are dropping off and their engagement rates. Its goal, Dhivya explains, is to match its budget on a piece of content with the audience.

“So once it has the mismatch, meaning when something is overbudgeted for the audience that it serves, the company will cancel it. And it’s sort of been a period of experimentation, because Netflix has had to build up its library from scratch in the last 10 to 15 years, as opposed to Disney or HBO that have decades of content to build on.

“So Netflix was, or is, in that period of high volume production, where it can’t really continue to do something that isn’t working, which is why we see the company doing very quick cancellations of series. Management would rather move on to something else.”

But this is changing, Dhivya reckons, as Netflix itself has acknowledged that the volume game is no longer in its favour anymore and is instead pushing the platform’s production towards quality. “Very recently, it restructured its film department where it is no longer going to be making 50 to 80 films every year, the volume will be lower and focus on quality instead.”

Balancing content and cost is a significant challenge, concedes iQIYI’s Dinesh. iQIYI, like Netflix, has an in-house film production division.

There is no magic formula to satisfying users’ hunger for content while balancing its content investment against efficiency, Dinesh says. “On the one hand, we want to invest in content and satisfy our users’ appetite for great content. We also want to invest in a local content ecosystem. On the other hand, we also need to balance that against the financial expectations that investors have for the business. I think that’s a common challenge, regardless of a platform’s base.”

iQIYI also relies on data to determine the kind of content the platform puts out, but being super data-centric and solely relying on data to make business decisions does not ensure quality, adds Dinesh.

What the company does is that it takes the data and uses it to gather other relevant information from users themselves via surveys.

“We know we can satisfy users with high-quality content, but we want to ensure that we don’t waste time on content that might not be as satisfying to our users. So, we use data we collect internally and verify by speaking to our users constantly,” he explains.

“These surveys tell users that we’re seeing a specific trend and what the results translate into and we would like them to verify if it’s something they want. We’ve created this iterative loop, where we experiment with something, collect data and validate through external means, which is then fed back into the decision-making process.”

The inclusion of AI in the writer’s room is another slippery slope that has become a heated discussion globally. iQIYI has started incorporating AI into most of the production process, from scriptwriting to production and even post-production.

Dinesh says as the capabilities of ChatGPT have shown, AI can enhance the scriptwriting process if it was fed all the scripts the company has written over the last decade.

“AI will be able to speed up the process of script generation and I think it can accelerate the content production process, making it efficient and cost-effective. This means producing more content in the same amount of time and resources.

“But, again, AI is just a tool at the end of the day and the creation process needs to have a hybrid of both the tech and the professional writer. The tools are to assist the creative process, not take it over.”

With the OTT landscape in Asia becoming highly competitive and the prevalence of piracy, providers need to get creative in the ways they generate revenue, if not from their content itself. One way is through advertising.

Streaming platforms were once against the idea of having advertisements but today, we see many of them offering ad-supported tiers.

Astro’s Smith says OTT players were quite purist when they first emerged, and just three short years ago, many were still championing “no ads”. Having been in the industry for decades, Smith says Astro knows that the content creation model works best when multiple revenue streams are generated.

“Ad revenue, which pay-TV operators have always promoted, add balance, enabling some of the costs of the business not to be passed on through subscriptions,” he explains.

Piracy is definitely a big challenge here, says iQIYI’s Dinesh, and with the company being headquartered in China, where piracy is even more prevalent, the freemium model made more sense. This gives users the flexibility to watch content for free (with ads) or to pay for the service to bypass the ads.

“We realise that users in Southeast Asia want value for money and are price-conscious, and with piracy in the mix, too, we need to find ways to retain the user. Ads are important to our business model and I believe it helps battle piracy,” he says.

But today, data and technology play an instrumental role in helping provide customers with more personalised and convenient services, while sustaining the business. One example is addressable advertising, which is the ability to show different ads to different households while they are watching the same programme. This means that advertisers can move beyond large-scale traditional TV ad buys and focus on relevance and impact.

“By leveraging key data analytics and TV’s persuasive power with digital targeting and measurement capabilities, the ads are more relevant and resonate better with audiences. This simply means that we can provide a more tailored and relevant advertising experience for our viewers, which leads to higher engagement and conversion rates for advertisers,” Smith explains. 

In 2022, Astro rolled out addressable advertising on linear TV across all Astro homes, building on the initial launch of Video on Demand and Astro GO in late 2021. Today, addressable advertising is gaining traction as more advertisers realise its benefits. Industry adoption has taken off well with average quarter-on-quarter revenue growing 2.4 times since it launched.

“Customers who have experienced the New Astro, with our new streaming box, are reporting significantly better satisfaction than the legacy base.”

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