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Singapore,SVOD

Netflix: Trojan Horse In Singapore?

StarHub’s proposed partnership with Netflix, announced by StarHub’s CMO Howie Lau during last week’s earnings call, highlights some key strategic questions about the future of broadband and pay-TV in Singapore.

On the face of it, partnering Netflix may make sense in the short term for StarHub, one of the Lion City’s two main telecoms and pay-TV groups.

Bundling Netflix with branded pay channel services would strengthen StarHub’s position as Singapore’s leading pay-TV operator, by providing its customers with superior on-demand services.

It would also show StarHub willing to go the extra mile for its broadband business, ensuring that subscribers don’t churn to its main rivals, Singtel, which also runs a pay-TV service, or MyRepublic, a pure-play broadband provider.

A pact with Netflix could undermine one of MyRepublic’s major selling points, an integrated VPN which helps bypass territorial blocks on overseas video services.

A localized Netflix, however, must still abide by local censorship rules.

Both advantages, however, depend on StarHub securing an exclusive partnership with Netflix.

Without exclusivity, integrating OTT video services becomes a flight to the bottom in terms of pricing and commoditization.

Successful integration with Netflix, relying on StarHub’s execution and marketing, may also pave the way for integration with other OTT services with regional ambitions such as Viu, from Hong Kong pay-TV and telecoms group PCCW, as well as other expected entrants from China and India.

COMMODITIZATION THREAT

At the same time however, possible partnership with Netflix raises some key concerns for StarHub, about possible commoditization and the changing balance of power in a broadband world.

Combined telco/pay-TV operators, such as Optus in Australia, Softbank in Japan and Virgin in the UK, tend to partner with Netflix when they lack a linear video business, have an exclusive window for Netflix or need to drive broadband demand.

StarHub’s pay-TV business, however, typically generates S$96-97 million (US$72 million) per quarter, representing ~15% of total sales.

This could even scale to more than S$100-110 million per quarter, if packaging and marketing of branded channel tiers are further optimized, TV Everywhere authenticated multiscreen services are improved and StarHub’s own SVOD service is enhanced (reflecting similar initiatives from Sky in the UK, Astro in Malaysia and Comcast in the US).

StarHub should also negotiate more digital rights in renewals with HBO and Fox, following comparable deals PCCW has recently done in Hong Kong.

A non-exclusive Netflix partnership threatens to erode the power of StarHub’s linear Hollywood entertainment and movie services (serving ~30% of its video base) and start to commoditize pay-TV, while further commoditizing broadband, currently trending at S$48-50 million in quarterly revenue.

That said, StarHub could use the partnership as a learning tool, opening the door in exchange for a better understanding how a well-designed, content-led initiative such as Netflix fares in a market like Singapore, and how it shapes viewing behavior.

Netflix, however, does not need StarHub for telco billing in a market like Singapore, with high levels of credit and debit card penetration.

In Australia, telcos are clamoring to partner with Netflix rather than the other way round, as a way to promote their broadband businesses.

Netflix will only likely share billing information and some top-line info on usage behavior, rather than provide deep analytics to StarHub or give full access to its platform.

Nonetheless, StarHub could still use this data to expand its own SVOD service, StarHub Go, to become a premium window ‘Pay 1’ competitor to Netflix.

This is unlikely to happen however, given StarHub’s resistance to escalating content costs.

WHO NEEDS WHO?

The biggest concern is that Netflix could take eyeballs away from StarHub’s linear business in the long run, if it is integrated into StarHub’s set-top box.

If anything, possible collaboration could end up being more valuable for Netflix.

It would likely accelerate on-demand viewing at the expense of linear channels, a threat StarHub would need to manage carefully, given that its own Go service has yet to become mass market or able to match its S$50 Arpu for pay-TV.

StarHub could end up as a vanilla app integrator and pure-play broadband pipe, delivering no real value-add over the long term.

This scenario is unlikely however, given StarHub’s rich content partnerships across linear and on-demand with the likes of TVB, HBO, BBC, Discovery, Fox and Disney.

A rosier future for StarHub could lie in building a well-designed platform that integrates SVOD services into its set-top box, aggregating and curating content rather than just aggregating apps, allowing StarHub to gain additional insights into customer behavior.

Netflix may not share that level of data, but with TV ratings and return-path data, all this is achievable now.

Aravind Venugopal is VP of research and consulting at Media Partners Asia (MPA). He can be contacted at: aravind@media-partners-asia.com

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