Online movie distribution – a disruptive force?

Written by: Vivek Garg

On Dec 20th, 2006

Recently I got to spend a lot of time at home with little work at hand. Along with gears of war on Xbox live I wanted to watch lot of hindi movies. After finishing new titles from the local Hindi movie rental shop, I decided to give a spin. I took a $3.99 subscription for unlimited movies for 3 days. I watched 4 Hindi movies with DVD/VCD quality online. They support 1 mbps and 512 kbps bitrates. After a few hiccups like clearing the browser cache, windows media player update and lowering the bitrate, I got the no jitter streaming to work in full screen. I hooked the laptop to my TV and audio receiver and voila, I was enjoying new titles that are not in stores with better quality.

At my corner store, I pay $1 for VHS and $2 for DVDs and these are 2 day rentals. It turns out that unlimited $3.99 subscription works out great. With heavy broadband penetration in US and not on time availability of VHS in local store, I wonder if these players are going to disrupt the business model of local stores in US and in India eventually. Let’s look at the players involved in this media distribution game, and the ones that can potentially disrupt existing channels.

1. Brick and mortar rental stores. These stores offer local distribution. People in the same locality go to the store, rent a movie for limited time. Advantage is no hassle local access. Disadvantage for these stores are limited shelf space, bad quality and late fees.

2. Online DVD rental companies (Seventymm, Madhouse) are already gaining popularity in India. For more players, look at this article by Anurag Gupta. They have obvious advantage of unlimited shelf space. DVD players are increasing in India every day. Estimates say that number will reach 50 million in 3-4 years. Here is the transcript of Rishi Navani on talking about their investment in Seventymm.

3. Cable TV, IPTV, video on demand (VOD). You can buy movies at a click of your remote. It will take some time for the infrastructure to develop in India, but this can be potentially disrupting to online DVD rental space. Disadvantage is the initial investment cost to the end user. Ideally, this will be the best option for home users. TV and remote rule the living room and any solution leveraging this can use it to their advantage.

4. Online streaming (, With broadband penetration increasing in India, 1.9 million by end of 2006, this can be the most disruptive in this space. In his interview Rajjat Barjatya says that Rajshri Media is currently focusing on the NRI community. And rightly so, given the current infrastructure in India. PC penetration is still less than DVD players. Computer skill set is required vs. DVD rental which can be operated using mobile phones & courier services. Biggest advantage is that producers and banners can choose this as their distribution channel (e.g. Vivah) and one can watch new movies before their DVD comes out.

We have seen this game played out in US. Netflix (online DVD rental) successfully crushed Blockbuster (local store rental chain) and now Blockbuster is using innovative, in store exchange programs along with online DVD rental to come back. VOD is already becoming an important player and Netflix has plans of online streaming. We will see how this game will turn out in India where we have huge gaps in number of television sets, DVD players and Mobile phones versus PC and broadband connections.

Along with the distribution channel, each player will have to figure out the best subscription model that suits the market best. Like every subscription model, they will face the issues of SAC and Churn. Who do you think has the best subscription model in this space right now? Given the Indian market, who has an advantage in this game? If you have a bunch of money, where would you invest right now?

Sphere: Related Content

Entry Filed under: bwcinema,DVD rental,madhouse,media distribution,movies,online rental,rajshri,seventymm

12 Responses

  1. 1. DesiPundit » Archives » Online Movie Disruption said on December 20th, 2006 at 7:11 am

    […] Vivek Garg at iLeher takes a look at the changing dynamics of movie distribution business, with the advent of services like IPTV, Video On Demand and on-line streaming […]

  2. 2. Neeraj Kumr said on December 20th, 2006 at 1:02 pm

    You are spto on.

    The ‘dvd rental’ is limited to only metro cities and a few coveted tier-2 cities. It’s my view that the access to broadband in tier-2 and tier-3 cities will be available faster than the time it would take to develop the infrastructure of sending and collecting dvds.

    Based on that assumption I would argue that lot of ‘dvd rentals’ sites are late on jumping on VOD and I find hard to justify the millions of dollars of funding these companies are raking in.

  3. 3. Prateek said on December 20th, 2006 at 3:07 pm

    What is DVD/VCD quality?

  4. 4. Madhur said on December 20th, 2006 at 6:38 pm

    I wonder what is holding the Indian cable operators from starting services like On Demand movies. As you pointed out, this looks like a very good option for Indian audience esp. in the short term (next 4-5 years) until the broadband really takes off. Thoughts?

    Also in the online streaming space, I doubt if a lot of services like bwcinema and bollygrounds etc. are legitimate, which might keep them from scaling even to just the NRI diaspora.

  5. 5. Nishant Kumar said on December 20th, 2006 at 7:02 pm

    Indian cable operators :) Leaving aside few niche cities, the reason cable operators do not start in in-demand services (the way it is in india) is the huge upfront cost involved. Also, in India, there is no consolidation in term of service providers. Each locality is controlled by a different *cable provider* who is undisputed in that area, so it is kind of monopolisitc. Although they have a *on demand model* where you demand and depending on how *good terms* are you with the operation, it will be filled.

    looking long term, I can see the viewing habits of Indian viewers kind of mirroring the US. In most cities, it is more of family coming togather -eating and watching kind of viewership. This is changing as the indian families get more and more nuclear. I see a lot of prospective demand for DVR (recording a show and playing later) in the coming years.

  6. 6. IndianPad said on December 21st, 2006 at 1:19 am

    Online movie distribution – a disruptive force?…

    Online movie distribution – a disruptive force? posted at…

  7. 7. Vivek Garg said on December 21st, 2006 at 1:46 am

    Prateek – DVD/VCD quality is how bwcinema describes their movie source encoding quality. For some movies they have (VCD) attached to it and they are inferior in quality than others.

    Madhur – VOD is pretty much there but to gain traction they still need to solve last mile problem. How do they split up costs with local providers as Nishant pointed out. Following are few links with some excerpts.

    But the market for TV and video in India is not exactly empty. There is the huge cable and satellite TV infrastructure (with nearly 50 million subscribers) to contend with. The private telcos are working out business models, with their content providers and equipment/software partners, to penetrate the market. The incumbents have chosen the franchising route, looking at the franchisee as a ‘strategic partner’ to market the concept and organize supply

    The success of IP TV in India will critically depend on the unique value proposition it offers relative to the existing cable TV fare; on successful implementation of last mile strategies; and on successfully ironing out bugs in the new technology, as well as support services like billing.

    Four million homes in Mumbai and Delhi will have access to Anytime VoD movie channel and interactive games channels by March 2007.

    DTH limits the consumer proposition as opposed to IPTV and we need a platform which can evolve to provide the consumer with as many services as possible, and IPTV does that. We become a part of an on-demand channel, a part of the solution. VOD is the most efficient system from the retailers perspective.

  8. 8. iLeher » 10 predictions for year 2007 - All about Internet industry in India said on December 31st, 2006 at 4:16 am

    […] 4. Introductions of DVR in Indian markets with onset of Set Top boxes and DTH – people will no longer have to sit through painful ads to watch their favorite soaps. Set-top boxes will increase the market share of VOD. Find a detail post on various movie distribution channels here . […]

  9. 9. Pawan said on January 2nd, 2007 at 7:12 am

    Online DVD rental services are new pattern starting in India in metro cities for customers taste and demands with no waste of time and money.

  10. 10. Vivek Garg said on January 2nd, 2007 at 9:52 pm

    Pawan, I do think that online DVD rental is a good distribution channel and provides a lot of benefits over local rental store. If I am a computer literate customer with a broadband connection then I have a choice between the 699 rs per month unlimited rentals @ moviemart vs $11.99 @ .

    I would like to know if you at see this as a competition to your business?

  11. 11. iLeher » Online DVD Rental: Behind the curtains with Madhouse- All about Internet industry in India said on January 10th, 2007 at 4:39 pm

    […] Competition: We did an earlier post on various ways of distributing media and how online streaming could be a potential disruption to DVD rental. I would like to add an interesting quote on that. “if you carry a 4.7-gigabyte DVD down a ten-meter-long hallway at one meter per second, you’ve effectively “transmitted” the data on that disc at more than 3,700 megabits per second–a speed home networks won’t be reaching for a long time.” […]

  12. 12. arun said on July 6th, 2007 at 10:19 am

    Online DVD rental services are new pattern starting in India in metro cities for customers taste and demands with no waste of time and money.

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