Herald Sun

The stream­ing pioneers flick­ing them over in droves

- John Bev­eridge

IF THERE is one thing Aus­tralians ex­cel at, it is adopt­ing new tech­nol­ogy. Fresh on the heels of the world-beat­ing adop­tion of con­tact­less credit card pay­ments, we are also set­ting new records with the use of stream­ing video ser­vices such as Net­flix, Stan, Presto and Quick­flix.

Ac­cord­ing to Roy Mor­gan re­search, a stag­ger­ing 151,000 Aus­tralian house­holds added Net­flix in June alone, tak­ing to­tal house­hold num­bers to 559,000 and view­ers to 1.42 mil­lion.

For a com­pany that only launched here in March this year, that is stu­pen­dous growth.

Over­all stream­ing video growth prom­ises to be tremen­dously dis­rup­tive for many busi­nesses, in­clud­ing most ob­vi­ously free-to-air tele­vi­sion but also in­ter­net providers, the na­tional broad­band net­work, pay tele­vi­sion gi­ant Fox­tel, the DVD rental mar­ket and po­ten­tially even the bid­ding wars for sport­ing cov­er­age such as the AFL and NRL rights.

Stream­ing video also prom­ises to change con­sumer ex­pec­ta­tions by pro­vid­ing video con­tent at times that are con­ve­nient and with­out advertisin­g — al­low­ing binge watch­ing of whole tele­vi­sion se­ries in one sit­ting rather than be­ing strung out over months by a net­work that might also change view­ing times or in­ter­rupt se­ries con­ti­nu­ity.

Per­haps omi­nously there has been some ex­per­i­men­ta­tion with advertisin­g by Net­flix in the US — which seems to chan­nel suc­cess­ful moves by Face­book to in­tro­duce advertisin­g — but so far there are no public plans to in­tro­duce advertisin­g.

Net­flix out­lined its global strat­egy, along with its fi­nan­cial re­sults in the US yesterday, which re­volves around con­tin­u­ing to of­fer low monthly sub­scrip­tion prices and in­vest­ing sig­nif­i­cant amounts into orig­i­nal pro­gram­ming, such as the Or­ange is the New Black se­ries (above), as a way of keep­ing alive its push to be­come the global leader in stream­ing video.

Ex­tra rev­enue might be earned by charg­ing ex­tra to have higher def­i­ni­tion view­ing.

It is an ex­pen­sive but so far suc­cess­ful play for the stream­ing video pi­o­neer, with plans to spend $6.8 bil­lion on new pro­grams in 2016 and $1.4 bil­lion on mar­ket­ing.

A se­ries of fea­ture movies are also be­ing shot, with the­atri­cal re­leases to hap­pen at the same time as they are re­leased for stream­ing so that the movies are el­i­gi­ble for awards.

It is an ap­proach that has seen ac­tual prof­its de­cline but cus­tomer num­bers grow to 65.55 mil­lion, with plans to reach 200 coun­tries by the end of 2016.

Ja­pan, Por­tu­gal, Italy and Spain are all due to join in the next few months and Net­flix con­tin­ues to try to open in China — a mar­ket with great po­ten­tial but also prac­ti­cal dif­fi­cul­ties given the de­gree of state con­trol over the media.

Per­haps sur­pris­ingly for a com­pany with droop­ing prof­its but sig­nif­i­cant global up­side, Net­flix is the best per­form­ing com­pany of the top 500 US com­pa­nies, with its shares more than dou­bling in price this year.

That cer­tainly hasn’t been the case for Aus­tralia’s free-to-air net­works, which have all strug­gled on the share mar­ket as a tough advertisin­g mar­ket has com­bined with in­tense com­pe­ti­tion and the dis­rup­tion caused by the new stream­ing video providers.

This dis­rup­tion is cer­tainly not the only cause of this tepid per­for­mance but it cer­tainly has played a part in the 44 per cent fall in Seven West Media shares, a 31 per cent fall in Nine En­ter­tain­ment and a 25 per cent fall by Ten Net­work.

The US ex­pe­ri­ence where stream­ing video is much more ma­ture sug­gests it is not all bad news for the tele­vi­sion net­works, with rat­ings hold­ing up well dur­ing peak times and for live sport, although stream­ing pop­u­lar­ity rises in non­rat­ing times.

There is also a the­ory that, as the ranks of those pre­pared to sit through advertisin­g thins a lit­tle, the value of those eye­balls that do watch the ads ac­tu­ally rises.

If stream­ing video has been dis­rup­tive for the tele­vi­sion sta­tions, it has had a huge im­pact on the broad­band in­ter­net providers.

iiNet, which struck a deal with Net­flix so that stream­ing video data us­age did not count to­wards data lim­its, was ini­tially so swamped with de­mand that its en­tire net­work slowed.

An en­tire year’s worth of data growth ar­rived in a few weeks and it has been a sim­i­lar if less pro­nounced ef­fect across the en­tire in­ter­net net­work.

With Net­flix hav­ing just ended a three-month mar­ket­ing con­tract with Op­tus, net­work com­peti­tors Tel­stra and Voda­fone Hutchi­son are thought to be look­ing at a sim­i­lar part­ner­ship in the fu­ture to lever­age sales from the pop­u­lar­ity of Net­flix.

In­ter­est­ingly, the Roy Mor­gan re­search showed that Tel­stra al­ready has more Net­flix cus­tomers than any other in­ter­net provider due to its large net­work.

Although just 5.2 per cent of Tel­stra broad­band users had Net­flix, that still equated to 142,000 house­holds.

As you would ex­pect iiNet (16.8 per cent) and Op­tus (11.7 per cent) boast higher per­cent­ages of Net­flix cus­tomers due to their mar­ket­ing agree­ments, which should en­sure an in­ter­est­ing com­pe­ti­tion be­tween the in­ter­net providers for Net­flix cus­tomers — coun­ter­bal­anced by the need to pre­vent their net­works from be­com­ing over­whelmed by stream­ing traf­fic.

This will be a real stick­ing point with the pric­ing of the NBN, given that in­ter­net cus­tomers will be used to vir­tu­ally un­lim­ited stream­ing and will re­sist ex­tra charges.

The ex­tra vol­ume of in­ter­net traf­fic re­quired by the in­stant pop­u­lar­ity of video stream­ing has changed the fi­nan­cial dy­nam­ics of the NBN.

It is now walk­ing a tightrope be­tween re­main­ing prof­itable and pro­vid­ing stream­ing ser­vices at a cost cus­tomers are used to.

The US ex­pe­ri­ence where stream­ing video is much more ma­ture sug­gests it is notn all bad news for the tele­vi­sion net­works

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