Singtel's shock decision to shutter Hooq this week after it struggled to find a viable business model for the Southeast Asian video streamer has many lessons for businesses to take heed of.
The 5-year-old streaming platform has the backing of giants Singtel (which owns a controlling stake of 76.5%) Warner Bros and Sony Pictures, and has in many ways been one of the poster children of Southeast Asian SVoDs. The service spoke often about how it had adapted its model from pure subscription to 'freemium' to make it more accessible in lower-income parts of Asia, and it laid out ambitious plans to invest in local original content.
In a statement announcing the liquidation of the service, Singtel said it struggled to make a viable business model for the OTT platform, citing factors including the high cost of content, the fact that global and local content creators are increasingly going direct, and the unwillingness of emerging-market consumers to pay.
Streaming TV is a thriving but complex business to operate in. Platforms have to contend with several factors including market structure, consumer behaviour, content economics and technology investments.
Furthermore, Asia is already a competitive landscape for OTT, and is bracing for the arrival of Disney+ and the lofty growth plans of global giants like Netflix, Amazon Prime and Apple TV+. Across Asia-Pacific, there are a mixture of global, regional and local players, operating a blend of subscription, advertising-supported and freemium models, all fighting for a piece of the pie.
Related: OTT platforms in Asia face profit challenges
In a crowded market, decision-makers await market consolidation before loosening their pursestrings.
But there is also plenty of headroom for growth in Asia, with new internet users growing every year, and access to the financial system opening up. So what went wrong for Hooq, that other businesses can learn from? Campaign Asia-Pacific asked four experts for their views.
1. Where did Hooq go wrong, that it failed to become a sustainable business?
Tony Gunnarsson, principal analyst, OTT video, Omdia
Hooq has not shared a great deal of detail, but we know that the company was running short on funds—it’s been reported that it was unable to pay for a number of planned original productions. The company has stressed that it was unable to grow fast enough—which is of course the number one reason for most OTT video service failures.
In general terms, OTT video is an incredibly difficult business, and the history of the internet is one with an endless list of failed video services. To succeed, OTT video services must have access to a steady source of capital in order to pay for new exciting content, decent technology stack and reliable customer services. Companies must also regularly advertise to drive heaps of new users to the service. Even if a company has access to the funds to do all of this—which I assume that Singtel with the support of Warner and Sony had—there is no guarantee of success. Fundamentally, without long-term contracts and without being tied to other products and services (such as pay-TV, mobile or broadband contracts), OTT video services remain at the mercy of subscriber loyalty, which is incredibly difficult to reach.
Five years after launch, Hooq had only just managed to break the 1 million subscriber mark (in 2019), and that’s across five markets, which is not a particularly good result for a streaming service with such big-name backing. I assume that Singtel’s US partners would have questioned whether to keep the service running. If either or both of the US partners decided to pull out, then that would of course explain the closure of the service. Regardless, the poor subscriber uptake five years in does speak for itself.
Aravind Venugopal, vice president, Media Partners Asia
It will be difficult to pinpoint exactly how, when and where Hooq went wrong in its five-year journey, and how much of this was brought about by internal decisions versus external market dynamics which were beyond its control. When Hooq launched, it had a credible, scalable idea—delivering content to the masses via mobile devices/networks and at affordable prices—and had backing from one of the regions’ largest telcos (Singtel) and two of the 'Big 5' (Hollywood Studios Sony and Warner). On paper, the pedigree was right. Hooq, in addition to Iflix and Viu, was going after the middle and lower end of the consumer pyramid that wasn’t (yet) served by Netflix. At the time, the much-touted vision and belief was that Hollywood/Western content would work—after all, piracy of Hollywood movies and US TV series/dramas were rampant in the region, and the idea was to make this content affordable to the masses.
The challenge lay in executing that idea, that vision. There were a number of roadblocks, starting with market structure, (existing) consumer behaviour, content choices/economics and technology. In the markets where Hooq launched (excluding India), paying for content wasn’t quite part of the consumer psyche. Free-to-air television was/is dominant, and served as the primary source of (local) content for the masses. And in many cases, FTA channels also carried Hollywood/Western movies and dramas, usually dubbed into local languages, as well as high-value local and international sports. Convincing people to now not only spend on monthly subscriptions (albeit smaller amounts than traditional pay TV) and then consume content on-demand (vs. linear live TV), via telco networks and using their mobile data (and in countries where at the time, data costs were relatively high), was one of the big initial stumbling blocks.
The next challenge was the choice of content and the underlying economics. Hollywood movies/Western (primarily US dramas) that weren’t dubbed had a following, but a significant portion of that base either already had a pay TV service, or were affluent enough to take a Netflix subscription—further squeezing the funnel of paying subscribers for platforms like Hooq, iflix and others. The cost of that content was also significant, especially when compared to local content.
The pivot to local content kicked off in 2017/2018 as platforms like Hooq realised that subscriptions weren’t scaling, and that the masses preferred local language or Asian content (as evidenced by Viu’s success, and Iflix’ experiments with Korean). However, local content was largely produced by and for the local pay TV or FTA channels, which meant that Hooq and Iflix needed to pay above-market rate to get access to the best writers, directors and production companies—driving up their content budgets.
The pivot from subscription to advertising was the next step that Hooq and Iflix had to make, as they realised that their competition was not just Netflix (with Western), but FTA TV on the local content front. And a pivot to advertising/AVOD meant that its competition now included the likes of YouTube, Facebook and other digital natives. Competing on the ad front meant having to not only build an entirely new product/service, but also the relevant teams. Hooq had commenced down that path, and had put in place the team and some of the product to tackle this, but there also remained the challenge at the top of the funnel—bringing in sufficient viewers for the free content, so that inventory could be created and sold.
Technology was, and remains a challenge. Underestimating the importance of technology was something many platforms have made in this space. While a lot of technology vendors offer off-the-shelf solutions, leaders in this space have almost always gone in-house and built their own teams and platform. Hooq, when it launched, went with off-the-shelf components, realised it didn’t work for the markets they were targeting, and then decided to rebuild. To their credit, they did get a strong tech leadership in place, and worked on building the team from the ground up. But that meant having access to significant resources (time and money), both of which were running short.
Xiaofeng Wang, senior analyst, Forrester
There are basically two business models for OTT: subscription or advertising. Hooq’s is the subscription model. Its sustainability requires there be enough consumers who subscribe to the service. It’s harder to succeed in emerging markets (Southeast Asia excluding Singapore) where consumers are less ready to pay for the content. In Singapore, where consumers are more ready for the subscription model, most of them tend to only go with one paid OTT platform, and Netflix is more likely to be their first choice.
Ben Crawford, regional managing partner, UM APAC:
Content streaming is growing rapidly everywhere in Asia, but the market is incredibly fragmented. Consumers are now overwhelmed with OTT providers and through our work on Netflix (a UM client), we know that many will likely choose two, maybe sample a third and download the rest.
Hooq was one of the first OTT platforms to launch in markets like India and Southeast Asia but we also know that these are the markets that were most hooked on VPNs, thereby setting the benchmark for affordable content to quickly draw in subscribers. In 2016, its average subscription fee was just USD$3.51 per month and even prior to its liquidation, it operated on a monthly and weekly subscription model with its weekly pricing from as low as US$1.40. Content costs have at the same time escalated, putting further pressure on profitability and business sustainability.
2. What could Hooq's owners have done better, that other services could learn from?
We know that Hooq has tried to bolster user uptake by launching different models in the last few years, for example by adding free content, ad-funded access, lowered prices and cheap daily plans in Southeast Asia. In India, Hooq was marketed as an aggregator of English-language content. While we do recommend OTT video services to be flexible and responsive to local markets and local audience needs, I do think services have to be very careful to maintain consumer brand recognition and that this sort of thing may ultimately backfire and cause more consumer confusion.
Hindsight is 20/20, as they say. I believe that Singtel, as did its other shareholders, underestimated the scale of investment Hooq required, and the timelines for profitability. Second, I believe Hooq could have also benefited had it been managed as a separate entity outside of Singtel with its own culture and pace, to allow it to be nimble and run as a startup. Telcos and content companies are two entirely different beasts, both with their own unique sets of skills (required), styles of functioning and paths. Very few telcos have managed successful content businesses, or scalable start-ups, and there is perhaps a lesson to be learnt there.
There are a few options:
1. Adopt a subscription and advertising mixed model from the offset. Free content will increase the adoption of the platform and nurture consumers gradually. When the market is more mature, then more consumers are ready to switch to subscription. Chinese OTT platforms like iQiyi and Tencent adopt this model.
2. Become a content creator. Produce your own original content to save the cost of purchasing copyrighted content. Netflix and Hulu adopt this model.
3. Most TV streaming platforms are not profitable. Is this a concern? Is Hooq the first of many casualties?
The theory goes something like this: In the future TV and movies will be viewed over the internet. The sheer scale of the audience of the future makes it worthwhile to build and maintain a streaming service, even at a loss today. But over time, your base of subscribers will eventually hit profitability, and everything will be fine. Now, this model works beautifully for Netflix, of course, as the single largest service of its kind globally. Others, like Amazon, can subsidise Amazon Video via its huge retail business, Disney+ can be subsidised via Disney’s theme parks and merchandising etc. Needless to say, this is a model that only works for select services. For the vast majority of services providers, this is unrealistic.
We’ve long said that the 2020s and the coming of multiple next-gen services like Disney+, HBO Max and others will make for tougher times for many local and regional streaming services. Consider that most services today were launched as part of the 2016 ‘SVoD bonanza’ when TV and entertainment companies and telcos launched streaming services hoping to cash in on the hype around Netflix. Many of these services were built to cater to a sort of side-business, that would exist next to flagship TV or operator services. Five years on, we now know that very few such services have managed to confidently compete against the US majors of Netflix and Amazon.
But now, at the turn of a new decade, with multiple new US next-generation services coming, the pressure is on for local and regional services to quickly upgrade and become services that can compete at a mass-market level (ie. with subscribers in the tens of millions, as opposed to hundreds of thousands). This will require a lot of investment but also the will to succeed. Services must abandon the idea that OTT video is some sort of side business; those that don’t are likely to fail.
Absolutely, the concern is real, and Hooq will definitely not be the first. Only time will tell who will be next, but in this business, funding is crucial. Following the closure of Hooq, I suspect access to capital may be tougher for some of the other players, and their management will need to work harder to justify to their boards why their models are better and not under pressure. One industry executive I spoke to opined the other day, “OTT had three rounds of funding—there was stupid money, easy money and smart money. The stupid money came in and left. The easy money, if you’re smart, can still be tapped into. The good money, well, let’s see who gets that and where it comes from”.
Yes, it’s a difficult market for smaller players. Hooq isn’t the first one and won’t be the last. There were 150-200 OTT platforms in China a decade ago, but most of them disappeared or got acquired (Youku, Tudou got acquired by Alibaba). In the West, you can find a long list of failed OTTs as well.
4. TV streaming is booming, especially during the current environment, but is this consolidating power in the hands of the few (Netflix etc)?
Yes, we expect strong growth for OTT video overall for the foreseeable future. The global market is exponentially increasing each year and will continue to do so right up until the late 2020s. Partly this is a story of audiences moving from traditional TV services to internet services; but at the same time, traditional TV players are reinventing themselves for the internet era.
Already today, Netflix and Amazon dominate global video streaming by the sheer number of subscribers. If we include Hotstar and Hulu, then Disney is the clear third biggest player in the world. The next largest global video streaming service providers are all Chinese or Indian, and almost all of them have services that are exclusively available in their domestic markets and that are tied to other products and services.
For the 2020s, we’re expecting the US majors to continue to dominate global streaming, and this will drive consolidation of local and regional markets. But on a regional level, Asia stands out as the only region where local services have managed to succeed against US majors, certainly in China and India. I think this will most likely remain the case through the 2020s.
It depends on how you define ‘booming’. Is it consumption? If so, certainly, telco traffic is up low-mid double digits in the last few weeks, and a big driver of that is video and gaming. Our early analysis also indicates that subscriptions have started to slowly increase. The challenge is for the AVOD players (ex YouTube). Consumption may be up, but the ad markets are under pressure, and therefore monetising that inventory will become a lot more challenging.
Whilst in recent years, growing consumer affluence has led to greater willingness to pay for content, the influx of new players into the region including the likes of Netflix has intensified competition whereby those with a strong point of difference will likely win whilst those that have commoditised content or similar content that can be accessed with free platforms will fall out.
We think that Netflix has managed to carve out a point of difference in these markets primarily through its original productions, including Asian productions. Disney+ Hotstar is planning to launch in India this coming week and will likely quickly be a dominant player in this key growth market with its combined global scale and local offering.
5. One theory is that the middle will fall out of TV streaming—there will be smaller local players and big global ones. Do you expect this to happen?
No, I don’t think so. I think there will be enough room for multiple types of services. What will be different in the coming years is that services will opt for different business models. Not everyone can survive using the Netflix model which relies on it attaining an ever-growing global scale. Services that are unable to compete as SVoD may instead opt for AVoD models, or hybrid AVoD/SVoD. Others may opt to become channels on aggregators such as Apple TV or Roku.
Hard to tell, to be honest. Access to capital will definitely be easier for the big global players, especially if interest rates fall again. However, the key question is on investor appetite. At the smaller local level, we have seen a number of closures in recent years because the tech and content economics didn’t stack up.
My theory remains that you’ll start to a mix of very large, well-funded global or regional platforms that emerge/remain and who want to continue to drive their own destiny, as well as the acceleration of aggregation models—as smaller more niche content players/owners forgo ambitions to develop and deploy their own OTT platforms, and instead chose to forge partnerships with larger more established players. A pivot back to the more traditional pay TV model in some ways, where operators with deep technology, marketing and payment expertise (not to mention pockets) becomes the aggregator of smaller content providers and IP owners.
There are two ways to survive: being big or being niche. But niche doesn’t just mean local players. It can be vertical too.
It appears that local content is critical to success and it would be interesting to see if regional player Iflix, who nine months ago has started to accelerate its pivot away from Western towards local and regional programming through partnerships, would be able to strengthen its position in Southeast Asia. Similarly, Viu, another key regional player, is also doubling down on Asian content via Viu Original, in an effort to fend off the globally established brands.
It remains to be seen if these efforts are enough. In the last quarter of 2019, Hooq had announced a deluge of original local productions in its drive to deliver 100 HOOQ Originals by the second quarter of 2020. The battleground now appears to be Asian or local content and In a region as diverse as APAC where every market has its own language and cultural nuance, scalability of content in an environment of abundant supply could become a primary challenge for OTT players.
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