A bloody battle worthy of a Hollywood blockbuster has come to Australia.
THE PITCH The video on demand (VOD) market has ramped up in Australia over the past few months, with the arrival of international streaming superstar Netflix spurring a revamp of recently launched subscription based VOD services from the major local media players – Stan (Foxtel), Presto (Fairfax) and Bigpond Movies (Telstra) – as well as incumbents and new entrants at the smaller end of town iFlix, ezyFlix, Quickflix, and FetchTV (backed by iiNet who is also offering Netflix on the FetchTV service and download quota free).
Not to mention the existing heavyweights Apple (iTunes/AppleTV), Google (Play), Amazon (Instant Video) as well as a range of services from studios or gaming consoles (e.g. movie streaming propositions on XBox and PlayStation).
However, the local market has been ticking along in a bit of a vacuum for the past few years.
Foxtel had been happy to push its ‘ Foxtel Go’ proposition (an extension of their existing PayTV service across mobile devices), Stan and Presto have basically competed amongst themselves while they try and develop a decent customer value proposition, and the free to air ‘catch up TV’ services like iView and SBS On Demand have used streaming to extend the life of their respective programming, and provide monetisation opportunities (for SBS at least through pre-roll video advertising).
Netflix’s arrival on the scene has kicked things into a different gear.
The rise of Netflix, AU online streaming site visits 2015. (Source: News.com.au)
HANG ON, WHAT’S CONTENT STREAMING?
It’s simply another way to consume video content (in this case entertainment); instead of going to the movies, whacking in a DVD to binge watch your favourite TV series, watching Foxtel (cable) or free to air TV (assuming people still do that!), you can watch content online either through a web browser or an application that runs on your device of choice (think ABC’s iView, SBS On Demand, TenPlay playing on your iPad or through your Smart TV).
Sometimes these are free services like ABC iView, others you pay for a device (e.g. Apple TV) that turns your TV into a online movie store (using iTunes) and you just pay for what you watch, and still others like Stan, Netflix and Presto are called subscription video on demand (SVOD) services and you pay a monthly fee (at the moment these SVOD service range from around $8.99 – $11.99).
The bottom line is that it gives viewers total control over what, when and how they watch movies and TV. And – like when Apple scared the pants off and basically broke the music industry pricing and distribution model with the iPod and $1.99 individual track downloads (and at the same time saving it from total destruction due to music piracy from peer to peer file sharing sites like Napster) – all this disruption has many of the the traditional content owners (think film studios) and media owners running scared (think network TV, Foxtel).
As Kevin Spacey – star and producer of Netflix’s wildly successful original program House of Cards – said in a recent speech:
The audience wants the control. They want the freedom. Through this new form of distribution…we have learned the lesson that the music industry didn’t learn: Give people what they want, when they want it, in the form they want it in, at a reasonable price, and they’ll more likely pay for it rather than steal it.
THE PLAYERS
Now, let’s introduce the key players in this distribution drama.
We saw from an earlier post on the MPK732 blog by Shaun Beirne and Ashlee Yang that the traditional movie distribution model has evolved (using The Walt Disney Company as an example) to provide channels for studios to have direct engagement with consumers through online retailing of their products, cable TV networks and through the DVD market, and that studios (some more succesfully than others) have vertically integrated their channels for some formats (e.g. cable TV channels). In addition to that, things have also become exponentially more complex as content aggregators arrived, licensing and bundling up packages of online studio content and giving access to consumers through iOS/Android applications, web browsers, connected TVs, gaming consoles and other platforms for a monthly subscription fee.
This has made the world of online content distribution a very complicated place, with no clear winners and plenty of change to come. Just looking at the distribution landscape as it stands today shows the level of complexity that these companies are dealing with.
Market segment leaders that pioneered new technoloy applications. (Source: Ulin (2013), p. 319)
SO, WHO WINS? AND HOW?
Well, I suppose it depends on who you think has the power.
Is it the platform owners – Samsung, LG, Sony Bravia, XBox, PlayStation and other conected device manufacturers – who decide which apps they will host on their platforms? I doubt it – unless they vertically integrate to get closer to the consumer it’s likely that they will stay in the ‘hardware’ space when it comes to consuming entertainment content online.
Or maybe the channels: online video or retail heavyweights like YouTube and Amazon? Perhaps, but they’ll need to seriously start producing quality content themselves not just serving it up or licensing it.
Apple. Well, they don’t currently offer a subscription VOD service, and they also haven’t ventured into content production either. Plus, they have Netflix and other services available on the Apple TV main (and you can download apps from Quickflix, Presto, Stan and Foxtel through the App Store), so they’re already getting a cut of the SVOD market through whatever revenue share deals they’ve done. See how it starts to get complicated…
Is it the Aussie media companies and telcos who have brought out their own subscription VOD services with thousands of hours of content? Why, when Stan has more content than Netflix (for now – see below) is it that they are getting passed over by customers? Could it be that it’s about quality, not quantity, and those with the original content or the deep pockets or global presence to fund global content licensing deals are in the driver’s seat?
AU SVOD catalogue hours available by service provider (Source: Gyde, April 2015)
Or will it be Netflix, with a strategy of creating exclusive original programming and serving it up to customers all at once to drive binge watching, combined with closing out the distribution windows for other platforms to give themselves a competitive advantage and a unique hook to promote their streaming service? After getting Australian audiences hooked on House of Cards Season 1 and 2 through Apple and Foxtel over the past couple of years, Netflix launched their service in Australia with House of Cards Season 3 as their headline title.
And in a move worthy of Kevin Spacey’s villainous president-elect Frank Underwood, you can only watch it on Netflix.
WHO DO YOU THINK WILL COME OUT ON TOP?
In case you hadn’t guessed, I’m backing Netflix. And Kevin Spacey.
REFERENCES
Ulin, J 2014, The Business of Media Distribution: Monetizing Film, TV and Video Content in an Online World, 2nd edn, Focal Press, London, UK.
http://mashable.com/2014/07/14/how-netflix-is-dominating-australia-from-abroad/
http://www.nextgenerationconsulting.com/netflix-sees-the-future-disruption/
Marketing Management Blog T1 2015 
I am backing Netflix for the first couple of years due to the enormous hype surrounding it through it’s United states customers. Many Australians currently obtain Foxtel as it has been around for so long and the convenience of it will keep customers on board. In all honesty at the end of the day, if somebody wants to watch a particular program, there are many avenues online that they can seek in order to view the program.
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Thanks for the contribution – Foxtel has definitely been at the forefront of the subscription/Pay TV market in Australia for a long time, and backed by the big media companies with DEEP pockets, pretty much a mandatory requirement when it comes to playing in the entertainment space. I agree that people will find a way to watch what they want to watch online, but convenience is also a factor, as is the price point. I don’t wan to use 3 or 4 different online streaming offerings, but as it is I definitely find myself using both Netflix (mainly for TV Series and some of their exclusive original content like House of Cards, Daredevil and Chef’s Table) as well as Apple TV / iTunes for new release movies. Given that Netflix is also available (and super-easy to sign up to) through the Apple TV main menu it was a no-brainer.
Personally, I don’t use Foxtel because their ‘on-demand’ offering is pretty weak for the Pay TV service (and they’ve recently had to drop their previously $80+/month subscriptions to under $50 to compete with the new entrants). In addition Foxtel have also launched Stan which is the low price point competitor for Netflix, but the actual content is a lot weaker when looking at the market they’re trying to serve.
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Great topic, and I think it is really interesting times for Australian viewers and lovers of TV entertainment. The new offering brought out recently by Netflix seems to me to be the way to go right now. Although if your one of those lucky people (like me) that has super slow broadband, and no access to NBN yet it doesn’t really matter either way. I do admit that Netflix has slow download speeds accommodated for, by reducing the quality of the streamed show, but that is still frustrating.
I think in the future we are likely to see more of these services available, and the competition will be high. It makes me wonder though if somewhere like Australia can sustain too many players in a streaming service style market? I’d imagine at some stage all the market would be captured, and the service providers would be left fighting it out for share of segment – similar to how pay tv was a few years ago.
Time will tell, and so will the delivery of the NBN !!!
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Thanks for bringing up the NBN – the roll out of which will surely expand the market opportunity, particularly as telcos/ISPs bundle VOD services into their plans for new customers (e.g. Optus is currently giving away 6 months of free Netlfix).
Likewise another interesting dimension to this is most definitely the scale factor; even if every household was a potential customer (once the NBN rolls out, barring socio-demographics this will almost be the case), Australia is still a small market on a global scale. Content deals for this region are a drop in the ocean for the global players, but significant for locals even like Foxtel not to mention out of reach for most of the smaller start ups in the market (even those backed by the big media companies).
Finally, you can’t have a conversation about the VOD market opportunity without considering piracy. Aussies are amongst the most proilific illegal downloaders of VOD content in the world. One of the hopes of the entertainment industry is that the introduction of services like Netflix – realtively cheap, convenient and easy to use – will mean that people who spent their time pirating the blockbuster TV and movies like Game of Thrones and House of Cards, will forgo the risk and hassle of illegal download, and opt for these services instead (similar to what Apple enabled when they introduced the iPod and iTunes). The recent noise aorund The Dallas Buyers Club studio suing iiNet for the names of the people that illegally downloaded their content was a landmark case, and just adds to the disincentives for individuals to pirate studio content (the fines won’t be massive but it is a significant milestone in holding ISPs to account for the behaviour of their users – let’s face it the ISPs were happy to look the other way as long as their customers were chewing up data illegally downloading anything and everything!).
If that happens, given that over 1/3 of Australians admit to regularly pirating movie and TV content, the size of the overall market could increase significantly. We’re still a small fish in a big global pond, but clearly the incremental opportunity is big enough to attract the likes of Netlfix who have over 50m subscribers worldwide.
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Recent convert from Foxtel ($120/month – 2 boxes) to Netflix ($15/month – 4 users) driven by next generation change in media viewing. Our TV’s are rarely turned on, the children prefer to use their computers or phones in any part of house or when they are out. Flexibility to stop, start, search what interests them at that moment of time. Next out TV’s will disappear from the house as unused items.
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Great point about the consumers of content and the use of thse services (ABC iView is a prime example) by parents to entertain kids! These subscription services are an excellent entertainment proposition for kids and the content for this audience is (usually) relatively cheap so a catalogue can be created relatively cost-effecitvely, compared to securing the rights to blockbuster content whether it’s a TV series or movie.
I think that your comments on Foxtel are also really valid around the value proposition – a lot of people are still subscribers to get the sports channels and Foxtel’s new packages are a reflection on this as well. The other thing about Foxtel is that a lot of the programming is still appointment-based rather than ‘on-demand’ which is an important distinction when audience control is an important factor (nothwithstanding that you can still record Foxtel content for watching later you still have to have IQ, and remember to record it / Series Link it).
I suppose the opportunities that TVs have is that they still promote the ‘lean back’ rather than the ‘lean forward’ proposition – and to keep relevant they will need to come pre-packaged with the most popular streaming apps built into their user interface (like the current crop of Smart TVs).
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I’ve never bought into the Foxtel package or similar products as I don’t think that they have fairly priced their products and you are still not immune to the endless commercials. I have however been an Apple TV user for renting the odd movies.
Only 3 weeks ago I signed up for Netflix and am (combined with study) doing a ‘House of Cards’ marathon binge session! It’s an amazing show and even has me shunning Game of Thrones to one side…! Which I never thought would happen!
So I agree, Netflix from my opinion is great value and they really have brought a fantastic product to the market. I believe they have the potential to win and come out on top as being the number one provider. However I don’t believe they will get there without offering the full product range as they do in the US.
Great post… I love this show…
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Absolutely, their product range is a fair way behind what they have in the USA, again a result of the distribution strategy of other companies – in this case the movie studios, who chose to whom and in what regions they license their content. It may be that some of the content is already licensed in Australia to other players, or that they’ve decided that for launch they will release only a certain amount and build it up over time as they need to, to keep their value proposition fresh.
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Great blog, thank you. I use both Foxtel and Netflix at the moment. Netflix is without a doubt the best streaming service in Australia. It’s affordable and access to unlimited movies and television programs. However the service doesn’t have sports programming. This is the only reason I am keeping Foxtel for now.
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Thanks for your comment – Sports programming is one of the key areas of differentiation for Foxtel and a big reason that many of their subscribers stick around. They pay huge money for broadcast rights however as I’ve noted elsewhere the old-school appointment viewing paradigm is outdated for general entertainment content… another example of a big media company hanging on to what it knows.. pay big money for broadcast rights and licensing, restrict the access, charge a packet and hope that customers keep paying!
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Foxtel is just too expensive and I refuse to give Murdoch a cent. It feels like they monopolise the market here. I am so glad that Netflix has popped up as people can actually afford it. Kevin Spacey is absolutely right in saying if you give people what they want they won’t steal it from you. There are so many channels to receive your viewing through nowadays. Streaming or downloading on your computer, smart tv, ipad. Foxtel, Fetch tv. It is hard to keep up!
BTW I will be voting for Dunbar – Underwood is such an awful human being!!
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Thanks for your contribution. I think that’s the crux of it… Netflix has grown into a media powerhouse by knowing its customers, as well as smart distribution strategy. The landscape is changing and the huge variety of platforms and devices mean that if they can get their hands on the right content, and keep the subscription fees reasonable, their position as the first choice for entertainment content with their loyal subscribers will make them hard to stop. It also means that those that pirate (a massive problem in Australia and around the world) will potentially switch to these streaming services as they’re just easier, while still being cost effective.
PS – I still think that the original FU – Francis Urquhart – from the british TV series would take Frank out! If you haven’t seen that do yourself a favour 🙂
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Thanks for the post- I find this such a complicated area and I now understand it a little better. I still prefer to rent by DVD from the local shop. At least it makes me exercise but the streaming and downloading options is so, so, convenient . My concerns is that in the future we will have to subscribe to multiple channels to access the content we want as different movies or shown will only be available via different distributors – especially when the make it themselves. Hang on -isn’t that just like what free to air used to be like. You picked the channel based on what you wanted to watch. Perhaps the method of delivery is different but the channel is essentially the same. Just a thought……
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Glad you liked the post, thanks. You make a good point about the future… the phrase ‘content is king’ holds true now as much as it ever has. That’s why Foxtel still has a heap of subscribers with it’s sports offerings, as well as exclusive Game of Thrones distribution window (Australia’s most pirated show as a result).
Totally agree that the ‘method of delivery’ is eventually (not too far off) going to be irrelevant and the winners in the subscription VOD race will be those with the best content and value proposition who also have the distribution across the ‘delivery platforms’. Netflix for example is front and centre on Xbox, Apple TV, a range of connected TVs, Fetch TV, and is being packaged in with new customer deals with the likes of Optus and iiNet, etc.
Traditional cable TV / Pay TV is likely the biggest loser out of this changing market dynamic as many Australian customers follow the US example of ‘cord cutting’ replacing the expensive monthly subscriptions, lock in contracts and set top boxes with internet streaming over a range of devices for a much lower monthly price.
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Well I am more of a Foxtel lover for simple reason being I work for them as a sales representative. Netflix has caused me many difficulties in selling foxtel to the customers. Although if i keep my personal monetary gain from foxtel aside, Netflix is a great option as it is much cheaper than foxtel and due to this reason it can reach out to wide number of customers all over Australia.
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Thanks for the insight – especially from ‘behind enemy lines’ as it were! I’m sure that you use offers around Foxtel on demand services like Presto to broaden out the offering of the main Foxtel service, but then again people probably look at that as just more money to pay out! A few people have suggested that they stick with Foxtel mainly because of the Sports – do you think that’s true?
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Thanks for the link to our blog.
Your blog is very interesting, as you quite rightly point out there is arguably a stronger link between quality and market share rather than quantity. Certainly the evolution of streaming has placed incumbent distribution services such as Foxtel under immense pressure. Foxtel has been forced into change by the disruption to their core industry as can be seen via their immediate business modification described in this article http://www.news.com.au/technology/home-entertainment/how-foxtel-plans-to-fight-netflix/story-fn8tnfhb-1227273967905
Foxtel are now heavily reliant on their sports content and have broadened the coverage immensely in the last 12 months of so with more channels and more premium content.
For Foxtel it really is Sport or bust.
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Thanks for engaging on this topic. Lots of good discussion here and on your blog. Based on Foxtel’s strategy as defined by News.com.au (thanks Rupert!) doesn’t sound like they’ve got toooo many new tricks up their sleeve.. they’re certainly in a difficult position protecting Foxtel with deep price discounting and new $25/month packages – now with no lock in contracts – which prices them above the streaming services but certainly in the price range of many more consumers; but with the obvious challenges of eroding their core revenue stream from their premium subscription offerings. Sports are definitely a cornerstone of their business and they pay big money for those rights, as well as for the blockbuster series’ like Game of Thrones. Interesting that their pricing strategy around Presto has also had to be reconfigured to suit their portfolio of other offerings (e.g. core Foxtel, Foxtel On-Demand, Presto, Foxtel Sports) and they have all the platform distribution channel challenges that the other streaming services face as well as the existing business which relies on the Foxtel box, plus the addition of other bolt-ons like IQ3. However, Murdoch and Fox do have a lot of options for the future, as well as the deep pockets to fund the content acquisition, as well as massive installed subscriber base. Will be interesting to see how far they’re prepared to go to keep their existing customers by changing the value proposition of their current products and services, and eat into their existing market to protect it from the attacks of the new streaming services who will be pricing to gain share over the coming years.
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Foxtel vs Netflix
Given the increased comfort level over the years, Foxtel, the local- pay-television company continues to be the locales’ favourite. The streaming quality would not be compromised owing to the locally placed structure with th customers.
Netflix, people who want a fresh breeze of change, to watch channels of their interest at prices of their interest, at their own time. What is noteworthy is the fact that, besides the much talked freedom it gives , it comes at an affordable price ( may be at the expense of quality of the streaming , download speeds ! ) .
Better internet connectivity, high speed download, Netflix would definitely be a deadly combination to watch out for.
I continue to love both the foxtel and Netflix. Its a win -win either way !
Would it be a clash of the titans ?
Time shall answer it.
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Very Interesting Topic !
Foxtel is keeping money big time on its game to attract clients to all its substance, dropping the base cost for its games channels to $50 a month. It has likewise fundamentally upped its game substance, joining both the V8 Super autos and Formula 1 to supplement its NRL, AFL, A-League and American sport offerings. In case you’re a games fan, you don’t generally have some other choices on the off chance that you need to ensure the capacity to watch any amusement you need. Foxtel then trusts since you’re subscribed to that, you will then include the motion pictures or show pack as opposed to joining to Netflix or Stan. Since Netflix has been hard to access in Australia, it has picked up a mythic notoriety for being the Holy Grail of TV and films. On the off chance that you haven’t seen it some time recently, you’d be overlooked for imaging it is an administration that has everything without exception. Shockingly, this is not the case.Netflix figures out how to keep its costs low by just holding substance licenses for a specific number of discharges at any one time, and by not paying for the rights to stream late discharge films or the most current TV shows.
Thank You for the Blog
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