Investment opportunities in Digital Entertainment – Alap Bharadwaj

A quick analysis of the entertainment sector that is served via technology in the US reveals three main areas of interest – Music, Gaming & Video.  Music & Video can be further divided into purchased and radio/streaming and Gaming into console and handheld, all of which are doing fairly well in the west. Given India’s status as a late adopter, the question remains – Will the country’s entertainment focused technology companies see the same success that their American counterparts have?

The answer varies for all three subsections and in my opinion hinges on a critical difference in the engagement propensity of users when interacting with these different mediums. Beginning with music, I don’t believe tech companies focused on this space, be it pay and download or radio, will have much of a future. The average internet consumer in our country has gotten used to downloading music in ‘lossy’ (mp3, etc) compressed formats and widespread piracy of the latest music both in Hindi and English hardly provides much incentive to switch to paying. Hard evidence exists in the form of Apple’s continued reluctance to open their blockbuster iTunes music buying service to the Indian public.

Additionally the problem with offering a radio service in India is plagued with its own issues. The ability to listen to internet radio at work would be disabled for the majority of India’s working public (due to strict work policies against such actions) and the poor quality plus high cost of India’s 3G networks make streaming of radio and on demand music a distant dream. While a case for exception can be made for technology companies focused on providing cloud services for people’s personal music collections, these too would suffer from the access problems mentioned earlier. Above all music as an entertainment medium might have many consumers but suffers from the critical flaw I mentioned earlier – the users are not engaged, thus reducing inclination to pay for such content.

Gaming and Video however do not suffer from this flaw. Both sections boast scores of engaged users with the inclination to pay. The gaming market has largely been tapped and conquered by the Xbox360, Playstation 3 and the Nintendo Wii, but what off the online video market? This is the area I believe with the largest chance for growth. Indian GEC and Bollywood content has virtually no presence online and any exceptions are pirated content that regularly get booted off websites like YouTube. Indian content is crying out for a desi version of NetFlix or Hulu backed by demand across India and more importantly abroad. Investors would queue up for companies that would be able to offer a high quality offering in this space as the model has both a proven growth strategy and significant exit potential due to the availability of appetite from retail investors for public equity of this nature as well as global acquirers.

I strongly believe that video will be the space to watch in the coming years on a variety of fronts. Content aggregators (a la Netflix) as well as companies focused on enhancing the viewing experience and constructing analytics and software for the unique conditions in India will flourish in the coming years. Investors have already backed certain players – Althea Systems, that makes a social video browser called Shufflr, raised US$ 3 MM from Intel Capital in November 2010 and Apalya Technologies, that specializes in Mobile video streaming, has raised three rounds of funding, the latest in January of this year. Given that the video focused technology space has seen investment, we now expect to see significant investor appetite for players in the content aggregation and video destination space.

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About Deepak
Venture Capital and M&A advisor, Entrepreneur, Startup enthusiast..

One Response to Investment opportunities in Digital Entertainment – Alap Bharadwaj

  1. Vijay says:

    I agree. The opportunity is huge for the video content and it will also drive server, storage and networking market significantly in days ahead.

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