Opinion

Streaming wars: Content battles, geo-blocking and telco plays – what next in the Australian subscription video wars?

streaming-montage-presto-stan-neflix-quickflix-468x317This week saw the first anniversary of the launch of streaming service, Stan. In part two of the Streaming Wars series Nic Christensen looks at how content, copyright battles and telco platform plays will determine the future of Netflix, Stan and Presto. 

The biggest concern for many observers of the emerging Australian streaming battle is the impact it will have on content – particularly Australian content.

On one side is the global budget and reach of Netflix, on the other side, everyone else: that is Networks Seven, Nine, Ten and Foxtel, and their services Stan and Presto.

Carat CEO Simon Ryan says while Australian content is “strong and healthy now” Netflix, which has 75m members in 190 countries, currently has about 1,000 titles from a library of 14,000 titles available locally.

Ryan: The content pipeline is only going to get bigger

Ryan: The content pipeline is only going to get bigger

“The point here is that the (content) pipeline is only going to get bigger,” said Ryan.

The real question is whether, like Presto and Stan, Netflix will start to put money into the local production sector.

Related content: Streaming wars: what impact is Stan, Presto and Netflix having on the media landscape?

Streaming by the numbers

Netflix’s dominance in the market is highlighted by research data from Experian Hitwise obtained by Mumbrella which shows just how far ahead it is of the local players.

Last May The Australian published the same data, which put Netflix at launch at around 475,000 daily visits.

The data for September to January shows it has grown more twelve-fold since March, at 6m visits, rising to 7m visits, amid a dearth of summer programming on free-to-air television.

The data is a relative comparison of volumes of traffic to each service over a week, covering all forms of devices – PC’s, tablets and mobile and internet connected TVs.

Eye for an EyeBut it’s not all doom and gloom for the local SVOD challengers.

The Experian data from May put Presto and Stan at around 50,000 visits each, but over the year this has grown, and by the summer Stan had reached more than a 1m visits per day.

Presto peaked in December, around the launch of the Home and Away telemovie An Eye for an Eye, on December 9, at 950,000 visits before falling away to 620,000 in the week of January 16. (Although it should be noted the likes of Stan have previously questioned the reliability of Experian Hitwise’s visit data in accurately reflecting its full visitor numbers.)

Those jumps in the December and January months have some senior figures in the industry questioning if the streaming players have taken another chunk out of the broadcast TV audiences over the summer months, as the networks have on the whole run some second and third string programming.

While media buyers and some industry insiders question if we will see a further drop in the audience waterline when the ratings year returns on February 7, TV programmers are not so worried.

Related content: The challenge delivering audiences for media agencies in 2016 

Nine’s director of programming and production Andrew Blackwell argues: “I don’t think you can judge it over the summer period. The summer period has a lot of repeats and it is not the premium content, but what you will find is when all the good shows start in February and as good content comes back people will come back to free to air.”

Brownlow: cost hurdle is less with SVOD.

Brownlow: cost hurdle is less with SVOD.

Megan Brownlow, editor of PwC’s Australian Entertainment and Media Outlook report, put it a different way.

“Television has always checked out over summer, except for cricket and the Australian Open,” says Brownlow. “The same risk has always existed with Foxtel but there is a difference this time.

“What we used to have was migration to pay-TV (over the summer) but there has always been a cost hurdle – that doesn’t exist with these SVOD players.

There is a much lower barrier to entry for that migration to happen.”

All the streaming players cost around $10 per month, with Foxtel’s basic package, even in its new month-by-month contract arrangement, costing $25-per-month.

Local content battles 

For Brownlow the key battleground in the streaming wars in 2016 will be around unique content.

The SVOD audience is responding to the offer of on-demand viewing,” Brownlow explains. “I can have it when I want, how I want. That is an incredibly powerful consumer pull.

I think there is a really interesting conversation around Australian content versus international content and if we look at the historical lessons in television there are big shifts towards Australian content over time.”

House of CardsThe PwC media analyst argues that faced with a brand that creates big exclusive global dramas like House of Cards, Orange is the New Black and Narcos the local players -in both television and SVOD – will need to think about how they invest in Australian content and use this as their competitive advantage.

“Strategically Foxtel, Seven, Nine etc. are going to have to think really carefully (about local content),” she says. “I know it’s high risk because it’s hit and miss, but they have to think about backing good Australian drama.”

The TV Networks, with their local content obligations, have long invested in Australian content and both Presto and Stan appear pleased with the response they have received from dipping their toes in the water in 2015 with projects like the Home and Away telemovie and comedy No Activity.

We had a terrific December in terms of the launch of Home and Away telemovie over summer,” says Presto boss Shaun James. “For that month it was by far and away the most streamed piece of content in the service.”

The Home and Away telemovie saw key characters return to the show.

The Home and Away telemovie saw key characters return to the show.

“It was the biggest 24 hours that we have had,” he adds. “In terms of people coming in and viewing the service. It brought phenomenally impressive numbers and one of the reasons for that is that one of the differentiators for a service like Presto is that we are heavily focused on unique and special content,” he says. 

James won’t release viewing numbers for the Home and Away telemovie, which was Presto’s first local commission, but adds: “That bespoke content is important. Whether it’s Wentworth or A Place To Call Home, All Saints etc. there is a real focus on that local content.”

For rival Stan, which is owned by Nine Entertainment and Fairfax Media, there is a similar focus on unique Australian content.

There will also be a big focus on those first run shows and you will see more of them in 2016,” says Mike Sneesby, CEO of Stan. “Last year saw our first original with (comedy) No Activity and this year we have already announced Wolf Creek which will be coming to Stan in the first half of 2016.

No Activity

Stan’s first local production was No Activity from production company Jungle.

“Plus we are commissioning the second season of No Activity, which will be on Stan later in the year, plus we will have more original production projects to announce later in the year.

“The reason we made such a sizeable investment in local content is that we knew we were facing international competition and we knew what that competition would bring to the market.” 

While Stan and Presto are busy commissioning local content, Netflix appears to have no immediate plans to enter the local content space with the global giant focused on dramas that will achieve a global audience.

“We don’t have any announcements to make at this stage but we are always looking to work with the best storytellers around the world to provide premium, quality content,” said a Netflix spokesman.

But amid an SVOD marketing war that has already seen more than $32.8m spent in just 12 months Scott Lorson, CEO of Fetch TV, a major player in the IPTV platform space puts the focus on local content by Stan and Presto in simpler terms.

Last year we saw some impressive investment in marketing for the three SVOD entrants,” says Lorson.

However, going forward, marketing will take a back seat to content. In this market, consumers will find, watch, talk about and recommend quality content.  

If the content proposition isn’t there, the old adage applies – ‘nothing kills a bad product quicker than good marketing.’”  

Licencing battles

Netflix estimated to have have more than 300,000 local subscribers accessing its US library via VPN.

Netflix estimated to have have more than 300,000 local subscribers accessing its US library via VPN.

The other side battle to keep an eye on in 2016 say industry insiders is the copyright battle, particularly around Netflix and the issue of virtual private networks (VPNs).

Netflix’s refusal to crack down on Australian users who access the SVOD service’s US library has long been a source of frustration to local players who accuse it of breaching licencing agreements.

Related content: Quickflix boss tells Netflix to end ‘back door’ access for Aussies

In recent weeks Netflix has signalled it will attempt to crack down on Australians accessing its US service via VPNs in what the likes of The Verge describe as a “cat and mouse game” between the streaming giant and the raft of VPN service providers promoting their ability to allow Australians access to the vastly bigger US library of content.

“I think it’s interesting that you have Netflix clamping down on VPNs,” says Stephen Langsford CEO of struggling local operation Quickflix, who has been one of the most outspoken on the issue. 

“Clearly the leakage from the Australian market for rights that were easily bypassed was/is certainly a challenge.” 

The move is also welcomed by the likes of Presto’s Shaun James who argues: “What it is about is protecting rights. It’s not just Presto it is the free to air broadcasters and Foxtel.

“People have secured rights to content for exhibition in the territory and the use of VPNs allows people to dive into other territories where that content is available. It levels the playing field.”

It has also been welcomed by the major studios, who see the bypassing as a major threat to their ability to monetise their content by selling it on a region-by-region basis.

The all important platform play

No area of the streaming wars however, will be more closely watched than the telco platform battle between the likes of Foxtel, Telstra TV and Fetch TV.

“2015 was unquestionably the year of SVOD,” says Fetch TV boss Lorson, whose company Fetch TV is aligned with Optus, iiNet and Dodo. “However, in 2016 the battleground will shift and the stakes will be raised, as the telcos emerge as the key players in the entertainment market.”

Lorson: marketing will take a back seat to content.

Lorson: 2016 will be about the telco platform plays.

“Given the players involved and the overall profit pool contested, the stakes are on an entirely different level.”  

Related content: The telco ‘triple play’ wars and not subscription video services will reshape the media landscape

In 2015, the telco players made opening gambits in the space in preparation for the broader battle for market share.

Telstra TVDespite its 50% shareholding in Foxtel, Australia’s largest telco Telstra stopped selling the T-box (a key driver of Foxtel growth) and instead launched its own platform streaming product Telstra TV, which aggregates all the streaming players Netflix, Stan and Presto, plus the catch up services ABC iView, Plus7, 9Now, TenPlay and SBS OnDemand. 

The move raised immediate concerns among media buyers that the new product would risk cannibalising Foxtel, but Serkan Honeine, Telstra’s director of home media, says this has not been the case.

Telstra is now preparing to launch apps for key sport franchises the NRL and AFL for the device, as well as foreign language channels.

“Since launch (in October), customers watched more than 184 years, or 96.9m minutes, of entertainment through the device,” says Honeine. “Our stats are showing that our customers are watching a wide variety of the content on offer, including Netflix, YouTube, Presto, Stan, BigPond Movies and all the Australian TV catch up services.”

“With pay-TV penetration lower in Australia than in similar markets around the world, we believe there is plenty of opportunity for growth in the pay-TV sector.

“Telstra TV aggregates great content … we are very excited about our plans to add the AFL and NRL apps to the device in the next couple of months. We are also looking forward to bringing popular foreign language content to Telstra TV this year.”

Related content: Why Telstra TV will eat Foxtel

The Telstra TV works on a device called Roku2, and Mumbrella understands that rival Fetch TV will launch its own rival device with a similar $100 price point in early 2016.

Lorson would not be drawn on the detail of the launch but said the importance of the play was around owning the TV by having the all important HDMI 1 spot – that then gives access to whatever content consumers want be it SVOD, TV or other online content offerings.

FetchTV wants the all important HDMI 1 spot.

FetchTV wants the all important HDMI 1 spot.

“From a telco perspective, SVOD services can be used to deliver tactical campaign outcomes,” he says. “However, their ubiquitous nature and characteristically high churn make them unsuitable for inclusion in telco bundles.    

“Local and international experience suggests that telcos will reserve the hero position in their bundles for an integrated entertainment platform offering that delivers broader and more lasting benefits, often by securing the all important HDMI 1 position and remote control.”   

In Australia in 2016 this will see three clear but differentiated offerings in market competing for that Hero position – Foxtel, Fetch TV, and Telstra TV.   

“We expect these services will grow by well over 1m households in 2016, on the back of aggressive bundling plays from the telcos,” says Lorson, whose subscriber base has doubled from 140,000 in October 2014 to 300,000 now, with predicions of that doubling again in the next 18 months.

Telstra TV and Foxtel both say they are also expecting strong growth this year.

“Telstra TV will go from strength to strength in 2016 as we add new apps and even more content choice for customers,” says Honeine.

foxtel logo-234x108Foxtel was unavailable for interview, although a spokesman responded to emailed questions saying: “The main impact of SVOD on the market has been to open up the idea of subscribing to content to a wider group of the population who may not have considered it before.

“We now have a bigger addressable audience, which Foxtel has benefitted from through increased subscriptions. They have been rising over the past year due to increased openness to subscribe coupled with our lower entry price.”

Sustainability

The SVOD space is notoriously difficult to make money out of. Indeed the monthly profit per subscriber is thought to be between 10c and 50c.

From the $10 per-subscriber monthly revenue on offer the they have to fund content deals, manage churn upwards of 50 per cent, and of course there’s the high cost of acquisition through marketing.

streaming-montage-presto-stan-neflix-quickflix-468x317The telco platform wars are comparatively high stakes, with telcos seeking to use the Telstra TV or Fetch TV entertainment offerings to bundle together landlines, mobile and internet in one package, with profits thought to be in the order of $30 a month per subscriber.

When scaled there are large pots of gold for the telcos who will use Netflix, Stan, and Presto to lure consumers.

But will they be the only four SVOD players in the Australian market or will other overseas players seek to come down under?

A number of streaming industry experts wonder if the competition in the SVOD market may grow in the years to come.

Netflix has had a clear and decisive win, having quickly established a dominant market share position,” says Lorson.  “And all eyes are now on Stan and Presto to see if either emerges as a credible number two.

We expect there to be 4-5 committed SVOD players in Australia within two years, as additional international players join the fray.  The bigger question is how many (of these SVOD players) will find a path to profitability?”   

While the current models all rely on subscribers the door may be open for an ad-funded model such as Hulu to come in and change the market once again.

Nic Christensen is the media and technology editor of Mumbrella 

Click here to read part one of Streaming Wars: what impact is Stan, Presto and Netflix having on the media landscape series

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