Ullu 101: How to make streaming $$$

Best known for titillation, Ullu is now a profitable OTT app raising money from the public. How?

Feb 21, 2024

Good afternoon!

Welcome to The Impression, your weekly primer on the business of media, entertainment, and content.

If someone shared this newsletter with you or if you’ve found the online version, hit the button below to subscribe now—it’s free! You can unsubscribe anytime.

Will OTT platforms ever make money?

Netflix already does, but what of legacy media houses that spend inordinate sums of money to survive the demise of their original businesses? Disney has promised it will make Disney+ and Hulu profitable by year-end. Warner Bros. Discovery’s David Zaslav has become an over-the-top Hollywood villain as he cuts costs and cancels shows to eke out profits from Max (the merger of HBO Max and Discovery+).

Nobody talks much about streaming profits in India. For some, like Amazon Prime Video and Jio Cinema, there is the support of bigger cash cows owned by the parent firm. Those bleeding money, like Hotstar and Zee5, are pinning their fortunes on a wave of M&A (mergers and acquisitions) activity.

Yet, here is a chance to invest in a reasonably large, profitable Indian streaming company that’s making money almost entirely from subscriptions (and a bit of e-commerce too!)

What is going on?

Finally, A Profitable OTT (*T&C Apply)

Founded in 2019, Ullu seems to be the only profitable streaming company in the country. It’s best known for its racy web series that are nearly pornographic or at the very least, constitute adult entertainment. Actresses who became famous on the streaming service’s series are popular on the internet as ‘Ullu App Girls’, often featuring in ads for gaming and betting companies or other internet-based consumer brands with a primarily male audience.

Last financial year, Ullu made nearly ₹93 crore (~$11.21 million) in revenue and a handsome net profit of over ₹15 crore (~$1.81 million), jumping more than 3x year-on-year. Almost all of it came from subscribers to the Ullu app, the company’s filings with the Ministry of Corporate Affairs show. ̛It also earned some ₹70 lakh (~$84,000) from the sale of products. Ullu closed FY23 with ₹9.41 crore (~$1.14 million) in the bank, primarily led by a ₹2.61 crore (~$310,000) inflow from operations.

Last week, the company filed draft papers (pdf) for a public issue on the BSE SME exchange, designated for IPOs of small and medium enterprises. Ullu’s founders Vibhu Agarwal and wife Megha Agarwal are tentatively raising ₹115 crore (~$14 million) to spend on producing new content, buying rights to international shows, and for its working capital requirements. This number may change in the company’s final prospectus.

Vibhu Agarwal’s team did not respond to my requests for a comment.

In the first half of the current financial year, Ullu has already made nearly ₹60 crore, putting it on target to surpass its previous year’s sales, along with higher profits (already past ₹12 crore) and better net profit margins.

Making this kind of money from subscriptions is a remarkable feat. Besides, most of Ullu’s subscription plans are a far cry from the premium pricing offered by the likes of Netflix and Amazon. At less than ₹500 (~$6) for the year, it even gives domestic rivals such as Disney+ Hotstar and Zee5 a run for their money. And you can subscribe to Ullu for as little as ₹99 (~$1.2) a month.

Besides, Ullu App seems to be running a tight ship. In FY23, it spent little over ₹31 crore (~$3.74 million) on purchases of stock-in trade—the cost of buying shows and films to stream on the Ullu app. In its draft prospectus, the company said it outsources all pre-production and production of its original shows and films to independent production houses, but controls all post-production and retains the copyright to the titles. On two separate IMDb profiles, Vibhu Agarwal is personally credited as a producer on at least 50 original titles.

Besides, titillation is relatively cheaper to make and plenty of Indians are ready to pay for it (read this edition of The Impression on why X-rated creators are most successful in making money from their audiences in India).

Navigating the Ullu web

Dig a little deeper beyond Ullu Digital’s draft prospectus, and you begin to see why the company’s numbers look so impressive.

Ullu App is part of a larger network of related companies owned by Vibhu Agarwal and his family. Apart from an e-commerce arm, Ullu 99, which sells men’s underwear and casual clothes, Vibhu Agarwal also runs a competing OTT app called Atrangii. In its earlier avatar, Atrangii ran as a free-to-air general entertainment TV channel that dabbled in live sports and aired minor league cricket matches. While Ullu is heavily associated with adult entertainment (although it is now commissioning mythology shows, per its draft prospectus), Atrangii offers more general entertainment, including K-dramas dubbed in Hindi.

Besides these, Agarwal runs a charitable trust and a girls school in Lucknow, the city where his company, Jaypeeco Group, is headquartered.

But before all this, Agarwal started out in 2011 as a distributor for TMT rebars with his Jaypeeco India Pvt Ltd. Company filings show that the company is a minion compared to Ullu app.

Between FY20 and FY23, Jaypeeco India made between ₹6-8 crore (~$720,000-$970,0000) in annual revenue with extremely slim margins—merely ₹1-3 lakh (~$1,200-$3,600) in annual net profits.

Clearly, Agarwal is far better at selling hot digital entertainment than TMT rebars.

But here’s where the web of companies gets interesting. In company filings, Jaypeeco India says that apart from selling rebars, it also produces movies. In FY23, the company made sales worth over ₹5 crore (~$600,000) to Ullu Digital by way of arm’s length related party transactions. These are transactions between two related companies (those with the same ownership, for instance) but conducted as though they are unrelated, avoiding conflict of interest.

Similarly, Ullu Digital earned ₹36 lakh (~$44,000) from the e-commerce sister concern Ullu 99. Incidentally, the Ullu 99 website offers a free three-day subscription to Ullu or 25% off on subscription to Atrangii for orders over a certain value.

Besides these, Ullu also earned a service income from its entity in Australia, worth ₹1.32 crore (~$160,000). Moreover, it paid ₹2.47 crore (~$300,000) in related party transactions.

To be sure, Ullu discloses the total amount flowing through related party transactions in and out of the company in its draft prospectus, but doesn’t break them down by each group company. A closer look at the financials of private sister concerns suggests that Ullu Digital’s cost of producing films and shows—the biggest cost associated with running a streaming company—may be diffused in other companies within Vibhu Agarwal’s Jaypeeco Group.

That’s good news for the Ullu app: it can somewhat free itself from the kinds of onerous costs that bog down the balance sheets of international rivals such as Max and Disney+. However, it isn’t great news for those interested in Ullu’s IPO. As the company scales up and invests IPO proceeds into producing more films and TV shows within this entity, it may no longer remain so profitable.

Last Scroll Down📲

Scan the big media headlines from the week gone by

Merger madness: This is straight out of a financial potboiler. First, The Economic Times reported that Zee had resumed talks with Sony to salvage their botched merger. In response, Zee Entertainment’s shares soared 6.67% this Tuesday. Then, hours after markets closed, the company issued a clarification (pdf) ‘categorically’ denying the story. Later that night, Bloomberg reported that Zee’s promoters may have siphoned off more than ₹2,000 crore (~$241 million), 10 times more than what Sebi had previously charged the family with.

Goodbye: The era of physical media—CDs, DVDs, Blu-Rays—is fading away. Last year, US electronics retailer Best Buy said it will stop selling all physical media starting this year, while Netflix exited its original business of shipping DVDs by post. Now Disney has outsourced the making and selling of all Disney physical media to Sony, just like Universal and Warner Bros. did a few years ago.

Retail 🤝 Ads: Walmart, the world’s largest retailer, is buying TV maker Vizio for $2.3 million. It’s hoping to turn ads on connected TVs a major source of revenue using its store of data on its customers. Retail advertising is lucrative; Amazon’s ads business grew to over $14 billion in the December 2023 quarter, up 27% year on year.

Cinema Paradiso lost: American moviegoers aren’t coming to the theatres, and box office collections have fallen to below pre-pandemic levels in the February 19 President’s Day Weekend, a major slot for the movies business. This month, Sony’s superhero film Madame Web bombed so spectacularly the company is reconsidering plans for a franchise. Besides, theatres don’t have a holiday blockbuster to carry business over in the new year.

Not fine: More EU fines are incoming for Big Tech firms. First, the European Union has asked Apple to pay €500 million (~$540 million) for preventing music streaming service Spotify from redirecting users to cheaper subscription plans outside the App Store. Now, the EU is also investigating short video app TikTok for allegedly failing to protect minor users; it could ask for up to 6% of the company’s annual sales in fines.

Tenuous freedom: The Delhi High Court quashed a PIL against The Print that claimed the media outlet’s story on India’s intelligence arm R&AW after the alleged assassination of a Canadian separatist leader exposed undercover Indian agents. The court called the story ‘innocuous’.

Meanwhile, last week, the Ministry of Information and Broadcasting orderedThe Caravan to take down a story and video alleging that the Indian army was torturing and abusing civilians in the Poonch area of Jammu, in J&K.

Trumpet 🎺

Dissecting this week’s viral ‘thing’

Paytm and front-page ads are inseparable. Back in 2016, the payments firm rolled out front page ads featuring Prime Minister Narendra Modi, congratulating him for his surprise demonetisation announcement mere hours after Indians were shocked to learn their ₹500 and ₹1,000 notes were suddenly illegal.

Eight years later, Paytm is getting the government jolt. After months of warnings from the RBI to fix its banking compliances, its payments bank is now frozen, putting its entire business model in jeopardy.

Cue: front page ads. Paytm is now hitting the front pages again, this time to reassure customers that the company’s ubiquitous app, QR code, and soundbox will continue to work despite the ongoing turmoil. There’s no Prime Minister on these ads, but Paytm has once again been careful to align itself with government programmes, including ‘Digital India’ and quite literally, a ❤️ for the United Payments Interface. They’ve been careful to leave out any mention of the government’s FASTag. Paytm’s FASTag will stop working after March 15.

Meanwhile, rival Pine Labs is shading Paytm in its own ads blitzkrieg. The company ran a caustic Twitter campaign subtly calling out Paytm for attempting to buy trust with front page ads. But the message is diluted by the fact that Pine Labs paid to promote this online diss. Besides, despite all of Paytm’s troubles, ordinary Indians likely do not remember Pine Labs more than they do Paytm when thinking about paying with a QR code. Besides, how much can a Twitter campaign counter the front pages of India’s biggest newspapers?

That’s all this week. If you enjoyed reading The Impression, please share it with your friends, family, and colleagues. And please write to me anytime at soumya@thesignal.co with thoughts, feedback, criticism or anything you’d like to see discussed in this space. I'd love to hear from you.

Thanks for reading, and see you again next Wednesday!