The streaming pioneers flicking them over in droves
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