Posts filed under online rental

Chat with the founder and CEO of Seventymm

Written by: Madhur

On Apr 22nd, 2007

[Update: Seventymm has given a special discount code for the readers of iLeher. See how to avail the offer at the end of the post]

Bollywood is big. It produces more movies than Hollywood. It sells more tickets worldwide compared to Hollywood. It has more more than double the annual growth rate compared to Hollywood. It was only a matter time that someone took notice of this and did an Indian version of Netflix, the online DVD rental service. Well as it turns out, several did. Seventymm is one of the largest and most VC funded players in this space. We profiled another company few months back on iLeher. There are several others trying to make a mark in this seemingly lucrative space. And just when you thought the market is getting saturated, the Indian behemoth Reliance announced its entry in this space with Did someone say bubble? Well we’ll see who (perhaps there is room for more than one?) emerges out as the winner but the activity in this space is peaking because of combination of several factors including growth in Internet penetration and usage, growth in the installed base of DVD players and burgeoning venture funding scene in India.

We talked with Seventymm on various aspects of their business including market stats, competition and what we expect to see from them in future. Here is what Raghav Kher, the founder and CEO of Seventymm had to say. Also they were kind enough to give our readers a special discount code to try out their service for free. Find the code at the bottom of the post.

1. Seventymm is obviously the most well funded company and has the largest footprint in India. Do you mind giving us some quick stats on number of subscribers, number of DVD’s it has in the collection, current market share etc.?

Seventymm has a library of over 15,000 films in Hindi, English and 12 other regional languages like Malayalam, Tamil, Kannada, Telegu, Bengali, Marathi, Bhojpuri, Rajasthani, Assamese, Oriya, Punjabi and Gujrati. The home video market in India is still skewed towards VCDs and so a large part of our inventory are VCDs. Approximately 30% of the titles are available in the DVD format. Currently we have a subscriber base of over 16,000 subscribers across Bangalore, Delhi & Mumbai. Our target is to reach 50,000 members by the end of 2007 across the top 10 cities in India. This has so far been a largely unorganized market and we are the largest player in the organized sector, both in terms of content and number of members. We are no doubt the market leaders by far.

2. We have spoken to Madhouse and other DVD rental companies that have plans of making the service available via phone, local shops, etc. What is Seventymm doing to address the needs of customers who do not have access to Internet?

We have tried to make the online process very simple, as simple as using e-mail. However those who are not familiar with the internet have the option of ordering DVDs either by calling our customer care even by sending a sms.

3. There are these often quoted issues around logistics of delivery, cheaper rates at local shops due to piracy etc. How does Seventymm deal with this?

Seventymm has set-up an efficient logistics infrastructure to support the service offering. We have an army of 125 delivery boys across to support the demand. Consumers are getting sensitized to the issue of piracy; one of the key reasons for accessing pirated copies was the lack of a credible option. However now they have a choice in players like Seventymm who are not only credible but also capable of catering to the needs of consumers in terms of choice and convenience.

4. Seventymm has this referral program where you get 1/6th of your rent off for every new customer you bring. How useful has been the referral program so far? Is this going to continue forever?

In India movies are a religion and people not only love to watch movies but also talk about them. Our referral program provides an opportunity to our members to talk about a service like ours to their friends and relatives. This not only helps in brand proliferation but also sign ups. Our referral program has been very useful in meeting these objectives and we wish to continue the same as a brand strategy.

5. Any potential threats from Moser Baer (they recently announced selling Hindi DVD’s at less than Rs. 40, which is less than the cost of the rental)

The entry of Moser Baer and low priced CDs & DVDs is a positive sign as the movie consumption will grow and so will the overall market for home video. However we do not perceive it as a threat at all because consumers may not like to buy all content even if they come very cheap. Consumers still buy content which they want to treasure or share, but predominantly rent.

6. What innovations, new services are we going to see in the future from Seventymm?
We will be present in 10 cities across India very shortly. In the next few years the speed of broadband will go up to one megabit per second. Once that happens we will start distributing movies digitally.

7. Anything else you would like to add for our readers?
We would like to welcome your associates and readers to try our service and have a special offer for them. We wish to discuss this with the concerned person in your team to execute the offer at the earliest. Please find the discount code below.

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Online DVD Rental: Behind the curtains with Madhouse

Written by: Vivek Garg

On Jan 9th, 2007

[Update: Madhouse has given a special discount code for our readers. Details at the end of the post]

A lot has been written about online DVD rental business in India and Madhouse being one of the earliest player in the sector, it’s getting buzz everywhere. Seventymm is the poster child of the sector with a funding of $7 million dollars. Madhouse recently closed an angel round of $228000 and looking for more. We sat down with Nandini Hirianniah and Ankur Agrawal, the cofounders of Madhouse to learn the tricks of the trade. Instead of writing directly about Madhouse which already has been discussed several times, we will try to learn the challenges, business process and state of the sector taking Madhouse as our case study.

Start of DVD rental business in India: Most widespread means of watching movies at home is either VCDs or tapes. Consumer appetite for free and cheap content and lack of attention to quality makes it hard to get good quality DVD movies at local rental stores. Also limited shelf space makes it hard to cater to the consumer looking outside of popular bollywood flicks. Success of players like Netflix in USA makes it a known business model. These are precisely the reasons why Madhouse entered this business and I won’t be surprised if others did for the same reason too. Madhouse started this service in May 2005 and they supported this business without funding for almost 1.5 year.

Business Goal: Since movie rental is a subscription business, growth in number of subscribers in one area + growth in numbers of areas served would bring success provided the subscriber acquisition cost (SAC) + cost of keeping the subscriber (churn) + cost of serving the subscriber (COGS) < revenue generated per subscriber (ARPU). This is a greatly simplified picture but I like looking at it with this basic goal. Madhouse wouldn’t give us these numbers but they did mention that they are keeping an eye on their churn. They could keep it constant and even managed to reduce it over time after learning from the customer feedback and by introducing new schemes. I think there is a real lesson here. Understand why your customers are leaving you and act on it.

VCs waiting on the sidelines: We have said this before in earlier post that VCs in India are sitting at the sidelines with their money waiting for the traction in various markets. Madhouse also gave us a similar picture. According to them VCs are going to wait to see how they use their angel money. Some of the VCs think that Seventymm has already got a huge amount of money and this is a winner takes all market. Madhouse also told us that they are looking to increase the depth in the existing markets they serve instead of spreading too thin by expanding immediately. This will mean that they have to go beyond the early adopters of DVD rental business. I think this is a really good way to show to a VC that they are capable of gaining majority share but this also means that they lose the early movers advantage in other areas. What would you do in this case? Madhouse also suggested that VCs typically want to invest into businesses with 10X returns in 5-7 years and some of them don’t see the DVD rental as one. Other concerns raised were logistics and piracy and investors are still skeptical about the licensing and revenue deals with production houses.

Crossing the chasm: Everett Rogers theorized that innovations would spread through society in an S curve, as the early adopters select the technology first, followed by the majority, until a technology or innovation is common. We can think of the current DVD rental business at early adopter stage and it is yet to be seen if we can reach majority. According to Moore, the marketer should focus on one group of customers at a time, using each group as a base for marketing to the next group. The most difficult step is making the transition between visionaries (early adopters) and pragmatists (early majority). This is the chasm that he refers to and it will be interesting to see how it applies in this scenario. Madhouse agreed that most of their customers are early adopters and they are not doing any mass marketing as yet.

Customer, Customer, Customer: Educating customers is tough. Madhouse is not trying to educate customers rather they are trying to gobble up as many customers as possible before they hit the chasm. Their existing markets are Delhi and Chandigarh and they are taking these markets as good learning experience. They have learnt about the consumer habits about watching their movies as soon as they get it. They think 1 on 1 communication works best instead of mass advertising. They cannot stress enough about the quality of movies but they experience tough time explaining to average Joe why DVDs are better than VCDs. Madhouse says it is too soon to say what percentage of customers is with which company. In fact they are working together with some of their competitors to establish this business in the minds of people. When asked about their biggest challenge, Madhouse rightly noted that it is acquiring customers.

Moat and Barrier to entry: What are the differentiating factors for a DVD rental business? What would prevent your competitor from stealing your customers?
-I think exclusive licensing or innovative licensing methods with the publishers and production houses are certainly one of them. Madhouse licensing structure with various publishers includes flat payment per title for unlimited rental for the entire year. They also mention free licensing if they buy the DVD. To reduce this cost they are also thinking about revenue sharing deals. Primary goal here is to reduce capital cost with increased availability of titles.
-Low cost and a large scale distribution network. This can become a true moat once companies go national. Madhouse is trying to build their own.
-Technology for online recommendation and title queuing algorithm. Getting this system right is very important. Madhouse has tied up with NetKode, the company that manages technology for, biggest DVD retailer in Singapore.
Offline presence: madhouse is trying to position itself as movie rental service in their users mind instead of web company. This is why they put emphasis on interacting one to one with their customers. They will also try to achieve this by increasing their offline presence. I would like to remind our readers that one of our predictions for 2007 was that DVD rental companies will come up with offline presence and Madhouse is the first company that is doing this. They have introduced a concept of Movie point. These are existing retail stores that will agree to become DVD return outlets. Slowly they can expand these channels as pickup points. This will create indirect channels at reduced or fixed SAC targeting customers who are not going online. This is important as reverse logistic (returning DVDs) makes a big chunk of operating cost for Madhouse.

Milking the cow: Kishore Biyani of Pantaloon recently said “The money is in the peripheral activities; it’s never in the retail itself. It’s the power of retail that gets you the money; it’s never the transaction that gets you the money.” We think that once a transaction based system is set up, one can do different things to milk their setup. What can DVD rental business do? Some of the ideas we could think of
-Use DVD packaging/labels for ad distribution
-Sell merchandising related to the movies being rented like posters, shirts and coffee mugs.
-Outsource their distribution network for delivering other internet purchases.
Can you give us more ideas how Madhouse can make money?

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.”

Madhouse team has agreed to answer any direct questions that you have for them about their business. Feel free to leave them as a comment to this post.

[Update] They also have a special promotion for our readers. Subscribe to any of the Madhouse subscription plans and get a 10% discount when you use the promotion code “ileher”. Have fun renting.

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10 predictions for year 2007

Written by: Vivek Garg

On Dec 31st, 2006

I have been thinking about the predictions that I want to make for the upcoming year. Predicting is a tricky business unless you are inspired by Nostradamus. First few things that come to mind if you tried predicting about the consumer Internet industry in India are : “mobile 2.0 will lead the way to web 2.0” or “more investments in booming industry” or “we will see increased M&A”. These predictions are either extended state of our present or they are generally true. So with the risk of sounding really stupid from iLeher camp, we put forward 10 specific predictions for year 2007. We tried to make them as specific as possible. Remember predicting is tough. But I am hoping this will get the dialogue started and we could encourage others to dare predict what they think will happen in future.     

1. Broadband growth in India will continue to disappoint by not showing an exponential growth. As against the target of 3 million broadband connections till 2005 end, only 0.18 million were achieved. At end-October, the total number of broadband connections stood at 1.92 million. The target till 2007-end is 9 million and 143 million by end of 2010.

2. WiMax will not be able to solve the last mile challenge; instead we will see a realistic alternative in cellular. Surge in WiFi enabled devices will increase the number of ways people get online.

3. Airline tax cuts will boost travel industry further in 2007. Better taxation model will lower the net cost of flying around in India. This will increase the volume for travel portals. Too many players will lead to lower margins on each transaction.

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 .

5. Online maps and local data will become commonplace. People will start using street maps and peer reviews of local destinations. It will lead consumers to online directions and use of map for their travel. This will benefit local search players like mapmyindia, burrp, onyomo. Google has recently started offering street level maps in India. At least a few of the big players like yahoo/msn/google/rediff/indiatimes will start offering local search in India.

6. ATMs everywhere will become a platform for ad placement, movie tickets and quick data shopping. This will cause increased computer literacy of Indian populace. Indian Railways is already extending the use of Internet to assist passenger’s book e-tickets over the ATM.

7. Mobile payment and mobile ticketing will hit mainstream. This will lead the ecommerce players to take mobile interface more seriously.

8. We will find Indians spending more time playing games (mobile, PC and console). will find itself well positioned. We will see players entering the gaming arena.

9. At least some online DVD rental companies and travel portals will realize the importance of offline presence and will tie up with local retailers and local travel agents for convenience of non-Internet savvy population.

10. iLeher will continue building a community of young professionals trying to make sense of the complex web of events relating to Indian Internet industry. Read our about page if you are interested in being a part of this community.

Your comments/suggestions and predictions are most welcome.     

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Movers and Shakers of Year 2006

Written by: Madhur

On Dec 27th, 2006

It’s that time of the year. Everyone is writing about the best of 2006. We thought it would be nice to look back at the happenings in the industry in the past year. Here is a collection of news that made the headlines in 2006.

THE News
The biggest event of the year was undoubtedly the IPO of Info-Edge (group owning Naukri, 99acres, JeevanSathi). This event has heralded a new era in the consumer Internet industry in India as it became the first Internet company ever to be listed on an Indian Stock Exchange. We hope to see some more companies to follow suit in the coming few years to keep the rally going. Some of the probable followers include the Shaadi group, BharatMatrimony group and the online travel companies.

Lot of money has poured in the market in 2006. As Venture Intelligence reports, VCs have made 53 early-stage investments in start-ups in India worth $355 million during the first nine months of 2006. That’s still nearly twice as much activity in that period than the two previous years combined. Here is a partial list of the investors and their portfolio companies.The leading sector in terms of investments has been without any doubt – Travel. Makemytrip, Yatra, TravelGuru, Cleartrip are some of the big names in this sector and all of them have already taken their second rounds of funding this year. The biggest of the VC’s from Silicon Valley including Sequoia, KPCB, Matrix, Norwest, etc. have made their presence felt in India. Some of the other companies that attracted big investments included online DVD rental company SeventyMM, leading community portal Sulekha, India specific search engine and online tutoring company TutorVista.

The only one that we know of is the acquisition of web2.0 companies Bixee and Pixrat by MIH networks. We hope to see more activity in this sector in order to sustain the bullish web2.0 scene and the overall ecosystem.

Although we raised our own concerns about the sustainability of web2.0 companies, this has been the most active sector because of obvious reasons – low barrier to entry both in terms of technology and investment. Following the trend from the West, loads of startups are trying to make a mark in social networking scene including photo sharing, video sharing, news/events sharing. Here is a partial list of companies trying to fight it out to acquire whatever small percent of users and advertising revenue that is available in the Indian market today.

Fun facts and figures

  • Airline ticket customers formed 40% of online shoppers in India, followed by books comprising with 29% and music at 24% of the total purchases. 30,000 Indians buy travel tickets online everyday.
  • The number of online shoppers in India rose 7% to 3.49 million in the first half of 2006 from 3.27 million a year earlier.
  • High-speed connections in India more than doubled to 1.92 million at the end of October from 690,000 in the year 2005.
  • Desktops account for 80 per cent of the total personal computer market as compared to 20 per cent of laptops. The latter will grow at over 100 per cent from 431,834 units sold in 2005-06 to 863,668 units in 2006-07 as compared to desktop sales growing at 22 per cent from 4,164,724 units in 2005-06 to 5,676,111 units in 2006-07.
  • The number of total Internet users in India stands at 35 million currently; out of this 10 million are considered to be “power users”.

Overall, 2006 was an active year full of excitement in the industry among investors, entrepreneurs and of course the users of the Internet themselves. The year has kicked in the enthusiasm required for bootstrapping the so called “Silicon Valley in India“. 2007 is going to be very important to take these early developments to the next level towards realizing the Silicon Valley dream. At the risk of sounding obvious, increase in Internet penetration (esp. broadband) is on the top of my wish list for 2007. Without the Internet users equipped with good connection speed, industry cannot go much further. Other than that I think eCommerce really needs a boost because that is the main driver of the Internet economy. More eCommerce, more advertising dollars, more business models and more companies.

Where do you think the industry is heading from here? What’s in your wish list?

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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?

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