European Networks Are Joining Forces to Take On Netflix and Amazon

Nextflix Europe Illo - H 2014

Nextflix Europe Illo - H 2014

Old media broadcasters in Germany and France are setting up ambitious joint national video platforms, but do they have what it takes to compete with the streaming giants?

In France, they call it Salto. A joint online video platform, unveiled last month, operated by the country's three largest broadcast groups — France TV, M6 and TF1. In Germany, commercial TV giant ProSiebenSat.1 recently joined forces with Discovery Communication's Eurosport on its own, as-yet-unnamed, VOD service, set to launch early next year.

And in Britain, broadcast giants BBC, ITV and Channel 4 signed a new five-year agreement to invest $165 million to turn British digital terrestrial TV platform Freeview into a "fully hybrid platform" that can provide "the best in free-to-view live and on-demand TV."

Traditional European networks have for years been trying to join forces online, but previous efforts — including the BBC/ITV/Channel 4 project Kangaroo and Germany's Gold, a VOD service that would have pooled content from public broadcasters ARD and ZDF — have been blocked by national regulators. Now, with international streaming giants Netflix and Amazon Prime looking increasingly dominant, European broadcasters are arguing that joining forces online is the only way to survive.

But can old school networks realistically compete with Netflix and Co.?

ProSiebenSat.1 and Discovery think so. Their new platform would merge the online offerings of ProSieben's 7TV, which bundles free TV programs from the likes of national networks Pro7 and Sat.1, and their stand-alone SVOD platform Maxdome with Discovery's sports platform Eurosport. Theoretically, the result could offer everything from ProSieben-licenced drama and comedy (NCIS, Big Bang Theory, New Girl, Criminal Minds) to top reality TV (Germany's Next Top Model, The Voice) to feature films — through the group's studio deals with Disney, Fox, Warner and Paramount — to Eurosport content, including coverage of cycling's Tour de France, matches from Germany's Bundesliga soccer league and, through 2022, the Summer and Winter Olympics. The new venture, headed by former Google and YouTube executive and current 7TV chief executive Alexandar Vassilev, is set to launch in the first quarter of 2019 and expects to have 10 million users within two years of operation.

The Salto project in France is, if anything, more ambitious, combining as it does the two leading commercial broadcast conglomerates TF1 and M6 with public broadcasting group France Televisions. Together, the trio accounts for around 60 percent of total TV viewership in France. An SVOD service combining the best programming from all three groups could be formidable.

“All of these ventures are clearly about scale, and I think that is key,” says David Sidebottom, a digital media and entertainment analyst at Futuresource Consulting. “As a local broadcaster, you can't go head-to-head with Netflix in terms of spending on content so pooling resources, pooling content, with other networks makes sense.”

But many are skeptical the new ventures can compete with Netflix and Co., especially now that the U.S. giants dominate the European streaming market.

“Everyone you talk to will probably tell you the same thing: they're too late,” says Florian Kerkau, a researcher with Berlin-based Goldmedia. In Germany, according to Goldmedia's figures, Amazon and Netflix account for close to half of the total VOD market, with local competitors far behind. Sky Go, the SVOD service of pay-TV group Sky, has a paltry 6.4 percent of the local market. ProSieben's Maxdome just 4.2 percent.

It's a similar story in other major European territories. Official TV ratings body Barb puts the total Netflix subscribers in the U.K. at 8.2 million, with another 4.3 million British households signed up to Amazon Prime. A recent survey by RBC Capital Markets show Netflix market penetration in France up from 21 to 37 percent over the past year (compared to 55 percent in the U.S.).

When it comes to SVOD, the U.S. streaming giants have a big lead in Europe.

And the European landscape is littered with would-be competitors that tried, and failed, to compete with Netflix, including Watchever in Germany, KPN Play in the Netherlands and, most recently, CanalPlay, the French SVOD service launched by pay-TV giant Canal Plus in 2011, which just announced it will fold in the coming months. In a recent hearing with the culture commission of the French senate, Canal Plus CEO Maxime Saada said Netflix's launch in France in 2014 eviscerated CanalPlay's subscriber base, which fell from a peak of 800,000 subscribers pre-Netflix to just 200,000 today. Netflix, by contrast, has seen explosive growth in the territory. In a presentation at the Cannes Film Festival in May, France's National Cinema Centre (CNC) estimated that Netflix controlled 70 percent of the country's SVOD market, with some 3.5 million subscribers. 

At a recent awards event hosted by consultancy group NPA, CanalPlus French boss Franck Cadoret said he was “skeptical” new French venture Salto could succeed where CanalPlay had failed.

Cadoret outlined what many see as the prime obstacles facing these new broadcaster-led SVOD ventures: They offer content most viewers can already access for free, that appeals to an older, less-SVOD savvy audience.

“If they can succeed, I'll buy bottles of champagne all round,” Cadoret told the audience, as quoted by financial daily Les Echos.

Others are more bullish about the prospects of these new SVOD ventures, if they can offer services that complement, and don't compete, with Amazon and Netflix. Annick Maas, a media analyst at Londonn-based Liberium, points to TVNow, the German SVOD service run by ProSieben competitor RTL, which relies heavily on locally produced content of the kind rarely found on Netflix and Amazon (despite a few high-profile Euro series such as Netflix's The Crown or Dark and Amazon's German-language thriller You Are Wanted). 

“If you have in-house production, you can play around with the schedule, the shows are cheaper to produce and its a source of content that, at least for now, is not so prevalent on the other platforms,” says Maas. “And there is an audience for it. (British soap) Coronation Street (produced by ITV) draws 7-8 million viewers per episode on average. People are still watching.”

Even broadcast networks' older viewer demographics could play in their favor.

“SVOD update so far has skewed towards younger audiences, but we are seeing the strongest growth now among older demographics,” says Richard Broughton, a research manager for Ampere Analysis. “And those older viewers are going to need different content than the younger Netflix audiences.”

Instead of trying to be cooler than Netflix, the argument goes, European networks might be better off playing to the middle-of-the-road viewers who prefer a home-grown cop show, or live sports, to the latest episodes of Orange Is the New Black.

Research by Ampere into consumer behavior, released July 9, suggests there could be plenty of room for newcomers in the European SVOD market. The new study shows SVOD “stacking” — when a customer subscribes to more than one SVOD service — is on the rise in most markets.  

“While Netflix’s global dominance is without question, for many consumers, Netflix alone simply isn’t enough,” the report concludes, “in the vast majority of markets, SVOD service stacking is the norm, and household spend is rocketing.”

“Clearly you can't go head-to-head with Netflix but if the services are different enough, and the content is strong enough, they all have a chance in the market,” says David Sidebottom of Futuresource Consulting. “Our research shows customers are prepared to pay for multiple services if the offerings are different enough. There is definitely room for two-to-three strong SVOD services per market.”

So far, Salto and ProSieben/Discovery have released few details on their new platforms. Both, however, are expected to be tiered, with a cheaper, basic service offering less exclusive or ad-supported content, and a pricier ad-free option with more exclusivity.

For Sidebottom, the key to the success, or failure, of these broadcaster-driven streaming platforms will be the extent networks are willing to invest in “fresh, premium content” on SVOD. In other words, will channels put their best stuff — the latest hit dramas, premium sports and live events — online first or continue to favor their traditional TV stations, holding back the most valuable content for broadcast? 

“The VOD offerings from the broadcasters has traditionally involved weaker content with too little marketing,” notes Florian Kerkau of Goldmedia, who is skeptical European broadcasters will risk hurting their linear channels by putting top shows on SVOD first. “And I don't know if the networks are willing to invest what they need to to build these platforms,” he says. “These are market-listed companies. They can't afford to lose money for five years building a market.”

The new European platforms could get some help from local politicians, who have watched with alarm as American tech giants have quickly conquered the continent's online video space. Regional broadcasters complain that media laws, which in some territories force them to abide by strict release windows for film and TV content and to contribute to funding local productions, put them at a disadvantage compared to Amazon and Netflix.

“I would expect more regulation on the big U.S. players, Netflix, Amazon, Facebook, in Europe,” notes Annick Maas of Liberium. “France is currently carrying out its biggest audiovisual reform since the 1980s (and) it's not in the interest of Europe to destroy the local players."

But even without regulatory help, new European streamers could benefit simply from a growing market. Compared to the U.S., Europe's streaming industry is still in its infancy. A forecast from Futuresource predicts strong double-digit growth over the next few years, with total SVOD revenues in Western Europe to hit $9.5 billion by 2020, more than double the $4.4 billion the region brought in last year. Ampere Analysis expects Europe — East and West — to add some 54 million SVOD subscribers over the next five years, with many of them being customers stacking new streaming services onto their current Netflix or Amazon offer. If the pie is big enough, there could be enough for everyone.

"The forecasts these companies are putting out are ambitious and there are a lot of things these new platforms have to get right — pricing, content, user interface, marketing,” says Sidebottom. “But if they are clever and find the balance, they have a chance of making it.”