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The Strange War for Eyeballs: Battle of the Streaming Services

“Once you factor in the revenues from OTT bundling deals such as those made between iflix, Hooq, Catchplay and others with telecoms operators, the revenue will be much higher,” says Martin Scott, principal analyst of pay-TV and media for Analysys Mason.

By Li-Mei Foong, UNRESERVED Media

When it comes to online videos, Southeast Asians are like the Demogorgons. For those not acquainted with the voracious predators in the Netflix original series Stranger Things, numbers will have to provide a clearer, albeit less lively, picture.

A research last year by AOL Advertising discovered big appetites in the region for video content – 72% of online consumers in Southeast Asia consume videos on their mobile phone daily, topping the US (67%), Japan (59%) and UK (52%).

Malaysians are among the most ravenous. Another study last year by data and insights consultancy Kantar TNS showed that 83% of Malaysians watch digital videos daily, compared with the world average of 68%.

Riding this wave of hunger are streaming video on-demand (SVOD) platforms, which allow subscribers to watch until they drop. Unlike traditional TV, viewers can play any movie or series on the platforms, any time.

Among the earliest to roll out in the region in 2015 was iflix by Catcha Group in Malaysia. Popping up along was Hooq, a joint venture by Singapore Telecommunications (Singtel), Sony Pictures and Warner Bros. Entertainment. Both boast beefy catalogues of programmes from the East and West.

But none is more jacked with Western shows than Netflix, the international juggernaut that muscled into the Southeast Asia ring in 2016. Other international players like HBO Go, Amazon Prime and Hulu also entered the fray.

Asian players are not cowered by foreign forces. Viu, owned by Hong Kong’s PCCW Media, compete with its trove of Korean and Asian selections. Taiwanbased Catchplay came for a piece of the action too. So did contenders from Malaysia like Tribe and Tonton by Astro.

As such, a treasure trove of entertainment from all over the world – legally – opened up before Southeast Asians. At a fee, of course.

Netflix is among the most expensive – subscription is around US$10 a month. Other players like Hooq, iflix, and Tribe are charging at a range of US$1 to US$3 per month.

The word ‘fee’ could have easily repelled Southeast Asians, known for being price-constrained and saying a hearty “Aye!” to pirated shows. But they are flipping the script: more are willing to pay for content.

Figures from iflix are telling. The firm says it currently has 7.2 million paid subscribers in Southeast Asia – a jump from the “more than one million” announced in 2016.

Netflix’s steeper fees did not deter Malaysians. In 2017, Malaysian users on the platform trumped other Asian countries in terms of viewers who binged a whole season of a TV show within 24 hours – an achievement that is slightly impressive, but mostly worrisome for the fattest country in the continent.

Research firm Analysys Mason projects that the total number of premium over-the-top (OTT) video users in South east Asia will grow about 272% from 32.7 million in 2016 to 80.3 million in 2022.

Analysys Mason defines premium OTT videos as Internet content which consumers pay for – both directly to its providers like Netflix or indirectly as part of a bundle with other services. It does not include ad-supported videos, like those on YouTube.

Direct consumer spend in the region on OTT videos – that is, what consumers pay to providers directly – will grow from US$425 million in 2016 to US$1.85 billion in 2022.

“Once you factor in the revenues from OTT bundling deals such as those made between iflix, Hooq, Catchplay and others with telecoms operators, the revenue will be much higher,” says Martin Scott, principal analyst of pay-TV and media for Analysys Mason.

NETFLIX CAN’T CHILL

For now, the region’s SVOD space is playing out like Marvel’s Captain America: Civil War – who wins depends on how one looks at it.

Numbers by French research firm Dataxis show that Netflix comes out top. This, however, was measured solely by subscribers who pay directly to SVOD providers. And not all customers do that. Many do get the service through telcos, which partner SVOD providers to bundle subscription with mobile or broadband plans.

“From a direct-to-consumer viewpoint, yes, Netflix is by far the largest in terms of paid subscription across the region. But if you are looking at reach, including wholesale agreements with mobile carriers, then I would say iflix is leading in some markets while Hooq is leading in others,” Aravind Venugopal, vice-president of media and telecoms analysis firm Media Partners Asia (MPA), explains to UNRESERVED.

Experts believe that the gamechanging factor lies in original productions, and Netflix takes this up to eleven – with an actual Eleven. The psychokinetic fan-favourite of Stranger Things is the poster child of Netflix’s productions: compelling and widely-beloved. In fact, the firm plans to spend US$8 billion this year on 700 original movies and shows, which will join a slew of critically-acclaimed predecessors like the Marvel Cinematic Universe’s The Defenders franchise and Black Mirror.

 
Stranger Things is the poster child of Netflix's productions. Photo: Netflix

iflix co-founder Patrick Grove also believes in investing in original production because, if done well, it practically “markets itself”. 

“What we find is that if we license a show from a third party, we need to pay the licence fee and we need to spend money marketing someone else’s show,” Grove tells UNRESERVED. “But if we spend more on making content, and we do [a great job], the word of mouth actually goes around so fast that you cut down on your marketing budget. In the end, you have more money to play with.”

According to him, the firm currently pumps 5% of its budget into producing regional shows, but plans to dial up this amount by 5% to 7% every year.

Like iflix, other regional players are doubling down on Southeast Asian original productions. On top of that, shows are dubbed or subtitled in local tongues to satiate the linguistically fragmented region. Even the US-based Netflix has started streaming films, TV series and documentaries from Malaysia, the Philippines and Thailand.

In December last year, Viu worked with the Malaysia Digital Economy Corporation (MDEC) to call for pitches from filmmakers. Shortlisted submissions were commissioned by the platform as original shows, which are set to air sometime this year.

According to its general manager and director Kingsley Warner, investment in local productions helps grow the market. It gives homegrown producers another source of funding and distribution channel to do what they do best, and this adds to the quality and quantity of shows on Viu.

“There’s no doubt that Korean content does very well for us… but the second best performing category in Malaysia is clearly Malay content. When we see consumers actively watching Malay series, even those a couple of years old, we know there is an appetite for urban Malays to still watch Malay content, which is why we still want to invest in that area,” says Warner in an interview with UNRESERVED.

A WORLD OF DIFFERENCE

While pumped for content creation, Viu is not sidelining content aggregation.

“The content production pipeline is lengthy, so it won’t be able to generate thousands of hours of content quickly. In contrast, we are adding about 70 to 100 hours of new content from licensed partners a week, which gives us the breadth of content that we can take to consumers and provide variety.

“So we have to invest some ways to start the [content production] value chain, but we also need licensed partners to create value for consumers. The balance at this point for Viu will tip towards licensed content… because that is what consumers are looking for,” explains Warner.

Scott of Analysys Mason agrees that content aggregation has its value – it controls costs, which protects the bottom line.

However, he notes, the cost of licensing deals for a large catalogue can be steep. In this sense, creating new content can potentially generate better returns.

“[Licensed] content is often undifferentiated. The consumer can also gain it easily through other sources – legal and illegal. Original shows, in contrast, are differentiated because you need to subscribe to the service to get them,” says Scott.

In the region’s crowded and fragmented SVOD playing field, content alone is not king. Exclusive content is.

“If you aren’t differentiating on content, then user experience and price are your key distinguishers,” he adds.

User experience is believed to be Netflix’s trump card. Despite its higher price and dearth of local content, experts credit its well-run platform as one reason why it still leads paid subscriptions. In terms of price, however, it’s tough to beat piracy.

PRICE WAR

While more Southeast Asians are loosening their purse strings, the majority of them are still the bargain-hunting bunch that we know, love and complain about. Getting them to pay for content when they can easily stream or download pirated ones for free is also like asking Queen Elsa of Arendelle to buy an air-conditioner.

But SVOD players aren’t about to let it go – not without a fight.

To beat the pirates at their own game, Viu adopts a ‘freemium’ model. This means users can watch selected shows with ads for free. Or, they can pay to bypass commercials and access premium titles.

“Free content lowers the barrier of entry for consumers to try out the platform,” says Warner.

The model allows for two-prong monetisation – ad revenue from the free tier and subscription income from the premium tier.

For now, it seemed to have worked. The two-year-old firm hit 400% year-on-year growth rates from last year.

On top of that, its partnerships with telcos add shine to its offers. For example, U Mobile subscribers in Malaysia get free mobile data to stream on Viu.

Such tie-ups with telcos are common. iflix has its pacts with telco heavyweights like Maxis, DiGi and Celcom in Malaysia, Indosat Ooredoo in Indonesia and so on. Hooq hooks up with Globe in the Philippines, AIS in Thailand, and Telkomsel in Indonesia.

Being bedfellows is often a win-win. SVOD subscriptions baked into mobile or broadband Internet sweeten the deal for consumers, while telcos can use these SVOD add-ons to boost its value proposition and drive up data demands

The partnership also sidesteps the region’s lack of plastic – in consumers’ wallets, that is (our ocean is another matter). Credit card penetration rates in Southeast Asia are in the low single-dig its. Carrier billing, which allows SVOD subscription to be charged to telcos, allows for an alternative payment method.

Aravind, however, sounds the alarm on the over-reliance on telcos.

“Telcos generally see partnership with OTT service providers as marketing spend… if they find the OTT services are not helping to sell additional services or increase their output, they will reevaluate the importance of maintaining such relationships.

“We estimate that, within a year or so, some wholesale deals between OTT players and telcos will slowly unravel. The deal structure may change, or the wholesale fee that telcos pay to these providers may drop,” he says.

Scott sees telcos culling partnerships as well. As telcos pick up multiple OTT deals at once, he believes that it is “inevitable” that they will need to shed some weight. To lock these unions, SVOD would need to demonstrate exclusivity, as well as the ability to grow while maintaining a stable relationship.

Kinda like most marriages, really.

NEXT EPISODE

Within the next five to ten years, Scott believes that some SVOD players will likely be squeezed out of the crowded space.

“I just don’t think that the market can sustain everyone.”

He explains that as Southeast Asians remain price-constrained, setting a low subscription fee will be paramount to gain sufficient scale and survive as a regional player.

“That means getting clever with revenue sources,” Scott advises.

One rewarding revenue stream is ads. Earnings from online video advertising was leaps and bounds ahead of the revenue from video subscription, according to Statista.

SVOD players are smelling the dough too. Aravind predicts that more platforms will experiment with the freemium model to get a bite of both the ad and subscription pies, like what Viu and Tonton are doing.

Despite the buzz, the SVOD space is still having mixed success in redirecting eyeballs from traditional TV.

On one hand, the Malaysian pay-TV behemoth Astro saw its subscription revenue drop RM5.1 million in the financial year of 2017. Singapore’s Starhub also saw 35,000 of its pay-TV subscribers cut the cord in 2016, while Singtel lost another 11,000 subscribers in the first two quarters of its 2016-2017 financial year.

In contrast, Kantar TNS notes that both free and paid online video consumption are gaining annual increase in Malaysia.

SVOD penetration in Singapore is also rising at 2% to 3% quarter-toquarter, according to Juliette Boulay, research analyst of Asia Pacific for Dataxis.

“But in markets like Vietnam, where pay-TV uptake is still low, SVOD is not a threat at all. As SVOD penetration in the country grew, we see pay-TV penetration rising as well – at almost 10% each year, in fact,” Boulay tells UNRESERVED.

Overall, she says, the SVOD market in Southeast Asia is ballooning about 20% every quarter with no signs of stopping yet. As the industry is still in its infancy, it is hard to tell if SVOD players’ relationship with telcos will truly change, or if traditional TV will suffer further. But that’s what makes the space so riveting.

“We are keeping a close watch,” she says.

So are we. Pass the popcorn, will ya?

This feature was first published in the May 2018 issue of UNRESERVED. To read the original article, please click: https://www.unreservedmedia.com/video-subscription-wars-southeast-asia/ 

 
Analysys Mason’s pay-TV and media analyst Martin Scott, Viu Malaysia general manager Kingsley Warner, and iFlix co-founder Patrick Grove.