How Homegrown Ullu App Turned Streaming Into A Profitable Business

In 2003, an Australian brothel devised an ingenious way to list on the stock exchange. Before the listing, the brothel transferred its earnings into a company called The Daily Planet which transformed it into a real estate company. The Daily Planet was listed at a 20% premium to its issue price. 

The Daily Planet is a study of how to raise public money without the risk of intense public scrutiny on less-than-legal businesses. Back home, we may witness another such ingenious attempt. Homegrown streaming platform Ullu, best known for its racy web series and films bordering on adult entertainment, has filed papers for an initial public offering (IPO) (pdf) on small and medium enterprises (SME) exchanges. The lure: it’s profitable and describes itself as a platform for “diverse content” 

The homegrown over-the-top (OTT) platform Ullu app may be among a handful of profitable streaming companies. When it filed its draft papers the company’s numbers created a flutter.

Look At The Numbers 

Last financial year, Ullu made nearly Rs 93 crore in revenue and a handsome net profit of over Rs 15 crore, a three-time year-on-year jump. 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 Rs 70 lakh from the sale of products. Ullu closed FY23 with Rs 9.41 crore in the bank, primarily led by a Rs 2.61 crore inflow from operations.

Ullu’s founders Vibhu Agarwal and his wife Megha Agarwal are tentatively raising Rs 115 crore to spend on producing new content, buying rights to international shows, and for the company’s working capital requirements. This number may change in the company’s final offer. 

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

In the first half of the current financial year, Ullu has already made nearly Rs 60 crore, putting it on target to surpass its previous year’s sales, along with higher profits (already past Rs 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 far from the premium pricing offered by the likes of Netflix and Amazon. At less than Rs 500 for the year, it even gives domestic streaming platform rivals such as Disney+ Hotstar and Zee5 a run for their money. And you can subscribe to Ullu for as little as Rs 99 a month. 

Managing Finances

The Ullu app seems to be running a tight ship. In FY23, it spent a little over Rs 31 crore on purchases of stock-in-trade — the cost of buying shows and films to stream on the 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 processes and retains the copyright to the titles. On two separate IMDb(online entertainment database) profiles, Vibhu Agarwal is personally credited as a producer on at least 50 original titles since 2019.

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).

But, digging a little deeper into the financials of Ullu Digital’s sister concerns demonstrates how Ullu makes its balance sheet so impressive. 

The Group Of Companies

Ullu App is part of a larger network of related companies owned by Vibhu Agarwal and his family. Vibhu Agarwal runs an e-commerce arm Ullu 99, which sells men’s underwear and casual clothes, as well as 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 in 2011 as a distributor for TMT rebars with his Jaypeeco India Pvt Ltd. Despite operating in a cash-rich industry the company is a minion compared to the Ullu app, company filings show. 

Between FY20 and FY23, Jaypeeco India made between Rs 6-8 crore in annual revenue with extremely slim margins — merely Rs 1-3 lakh in annual net profits. 

Agarwal is far better at selling hot digital entertainment than TMT rebars. But here’s where the web of companies gets interesting. 

Jaypeeco’s Role

In company filings, Jaypeeco India says that apart from selling rebars, it also produces movies. In FY23, the company made sales worth over Rs 5 crore to Ullu Digital through 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 Rs 36 lakh 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 a subscription to Atrangii for orders over a certain value. 

Besides these, Ullu also earned a service income from its entity in Australia, worth Rs 1.32 crore. Moreover, it paid Rs 2.47 crore 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, these costs will show up on the books of Ullu Digital, adding to its operational expenses. What is now a rare profitable streaming company may no longer remain one. 

Streaming platforms are struggling with profitability. Legacy media companies globally, including those in India, are grappling with a slowdown in their traditional cash-cow businesses such as television, while simultaneously incurring financial losses in their newer streaming ventures. 

This is why when earlier this month, American entertainment conglomerate Disney’s top executives said they were committed to turning the streaming business comprising Hulu, Disney+, and Hotstar profitable by the end of 2024, the company’s stock rose 7% in after-hours trade that day. 

Ullu has a chance to script India’s first OTT success story. But public scrutiny could eventually put pressure on the firm’s operation choices. The Daily Planet had also found an ingenious way to avoid the pressure, but the company’s actual business (the brothel) and the front (real estate firm) are all but shut.