“The customers Jio has managed to get and those who pay for Netflix are not the same,” adds the executive.
And senior employees within Reliance agree.
“The two most popular apps in Jio were YouTube and Facebook. Personally, YouTube credited Jio for a 75% surge in new sign-ups,” says a senior executive at one of the Reliance group companies who has access to the data. (The Ken could not independently verify the information.)
Not Jio Cinema or Jio Music. “The subscription fee builds a mental fortress. Use your rations and stay within the apps. Don’t use others,” says the former chief marketing officer. Customers, he says, don’t like to be told what they can and cannot use. This idea is very similar to R-World, which was a permanent button during Reliance’s heady days in 2003 when it was called Infocomm. Value-added services then, content now.
Data is the road, content is the destination
For better or for worse, Jio is looking at revenue generation differently than Airtel, Vodafone and Idea. Until recently, the telecom companies measured revenue generation via Average Revenue Per User (ARPU). The game changed, and now telecom operators focus on revenue per unit of data consumed. Currently, the operators make anywhere between Rs 100-200 per GB. Jio will make Rs 10. “The margins are extremely thin anyway. It is in the negatives here,” says the head of a content provider. And that’s where Jio doesn’t care. This is not the play it is looking at, it never was. The free data was the nudge.
“The likes of Airtel were subsidising content by charging for data. Jio wants to subsidise data with content. And the more a user consumes, the more Jio makes,” says the senior executive at one of the group companies. It sounds familiar? In a way, Jio has taken it back to ARPU. And there is a reason.
Because net of taxes, Jio’s Prime plan will generate an ARPU of Rs 260 monthly, which as well-laid plans go, is higher than both the incumbent’s blended ARPU (Rs 190) or data-only ARPU (Rs 150).
And content is a hook that customers can never get enough of.
And Reliance seems to have hitched its success to content. No, not even calling, because calling is free too. (The exception is international calling but that accounts for very little of a telecom operator’s total revenue.)
Unfortunately, there’s a fly in this ointment. India isn’t a big data market yet and a significant number of people are still dependent on voice.
“The customers, primarily the Rs 150 ARPU ones, who used Jio for data will now switch out. India has not matured to a complete data market and how Jio manages that will be something to observe,” says Tanu Sharma, an associate director with India Ratings & Research.
She further adds that as low-usage customers baulk at paying, high-usage customers will closely watch Jio’s speeds. “Airtel is currently offering better speeds than Reliance Jio since it has been adding new customers. Lower speeds will cause further churn,” she says.
And for the content play, the prices need to be higher.
Even if every single Jio customer sticks around, it will make around Rs 37,000 crore in the year. “But that won’t cover the salaries, the overheads, the very expensive licenses, money spent acquiring the spectrum and the cost of the technology,” says the content provider top boss. Add to it the continuous investments Jio will need to keep making to keep its service up to the high-speed experience. “Any drop will be damaging,” says Sharma.
So, when will it start breaking even?
“With the current cost structure, Jio can’t. The next year, it will change,” says the executive at one of Reliance’s companies.
Change how? “Next year. The Rs 99 may give you access to just a few apps, not all of them. For the others, pay the subscription fee. Hopefully, customers like the content enough to pay the full or a portion of the full fee,” he adds.
Same, same, but different, different
And that’s where the argument circles back to Amazon Prime. Hooked once, pay again. But there is one key difference between content providers and Jio’s content library. Exclusivity. Or the absence of it. When it comes to content, let’s look at what it is competing with:
Hotstar: Exclusive deals with HBO, Fox and Disney and IPL
Amazon Prime: e-commerce, premium delivery, Amazon originals
Netflix: Exclusive films and Netflix originals (including film and TV)