Netflix Launch Fuels Streaming Video Growth in Australia

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Netflix CEO Reed Hastings says about the company's outlook in Australia: “It may take some time. That’s fine, we’re patient.”

Australian consumers have embraced Netflix and its rivals, but a month after hitting the market down under, the company is also finding some challenges.

Demand for streaming video services in Australia has soared amid the launch of Netflix in late March, but one month in, media and telecom companies down under are still grappling with the impact the global streaming giant will have on the sector.

It is tipped to be worth $544 million (AUS$700 million) in 10 years. Certainly Netflix appears to be a consumer darling early on in Australia.

Use of bandwidth has skyrocketed according to Netflix’s telecom partners — leading to concerns that their networks may not be able to keep up with demand — and Netflix rivals say the increased awareness and marketing around streaming services are driving new subscriptions across the board.

According to content search company Gyde, in just one month, Netflix’s library of content in Australia has jumped to 5,748 streamable hours, sitting second in the market for volume of product behind Stan, the joint venture of Nine Network and Fairfax Media, which offers more than 6,000 hours.

The content sector is more circumspect, saying that Netflix, as a global player, has no interest in investing in Australian content. And Netflix will be in the sights of the Australian Tax Office if the government brings in tax reforms that would apply a 10 percent goods and services tax to imported goods, including streamed content, that is worth less than $780 (AUS$1,000).

While Netflix hasn’t provided subscriber or sales numbers in Australia, according to the nation’s third-largest Internet service provider, iiNet, the volume of traffic on its network has grown by up to 25 percent, with no signs of that letting off.

Mark Dioguardi, chief technology officer at iiNet, with which Netflix has a sales and data agreement, described the impact of Netflix on its traffic levels as “absolutely amazing." He made the comment at a telecom industry summit this week.

Even when Netflix’s free trials finish, Dioguardi doesn’t expect demand to drop off. “Where’s it going to go from here in terms of demand? Who knows … but 25 percent of traffic is a lot, and for us it’s not substitutional," he said. "We’ve seen hardly any change in the absolute volumes of other CDN [traffic]. Almost everything we’ve seen in terms of Netflix growth has been additive to our network." He added: “There’s been a slight offset in when the traffic is consumed … but you’re talking nearly a 25 percent increase on our network."


At the same time, Allen Lew, the CEO of Optus — which also has a partnership with Netflix — said the telecom company was looking at scaling its pricing structure to offer premium services to video players like Netflix to ensure a smooth end-to-end service. That move is unlikely to be supported by Netflix.

Indeed, Netflix CEO Reed Hastings told investors this month that going forward the company will not do deals with telecom companies that allow customers open access for Netflix’s service, while capping data usage for other services, calling those data caps “discriminatory."

He said: “We recently sought to protect our new members from data caps by participating in ISP programs that, while common in Australia, effectively condone discrimination among video services (some capped, some not). We should have avoided that and will avoid it going forward."

Added Hastings: “Fortunately, most fixed-line ISPs are raising or eliminating data caps in line with our belief that ISPs should provide great video for all services in a market and let consumers do the choosing."

Either way, Australian rivals seem to be enjoying the benefits of the so-called Netflix effect.

Competitor Quickflix this week reported a six percent increase in paid customers for the fiscal quarter ending on March 31, largely as a result of greater overall consumer awareness of streaming services “The combined promotional efforts of all competitors in the market and heightened media interest, is contributing to increased consumer awareness and demand,” the company said.

Quickflix was able to capitalize on that by growing subscribers to 140,901, including trial members. Paying subscribers increased to 123,553, while the volume of material streamed over the quarter was 34 percent higher than the previous quarter. Revenue remained stable at $5 million for the quarter.

Quickflix, Netflix and other rivals, Stan, and the Foxtel- and Seven Network-owned Presto are expected to pull in a total of 1.5 million subscribers by the end of the year, according to analyst Fraser McLeish of Credit Suisse. That’s equivalent to around 12 percent of total home entertainment and pay TV subscriptions, he said. By comparison, Foxtel has taken 20 years to grow its subscriber base to 2.6 million, or around 33 percent of Australian TV homes.

In provisional forecasts, McLeish said that in 10 years streaming media will be a $544 million business down under — less than 10 percent of Australia’s $10 billion media market — which will be dominated by Netflix with its global reach and original content, taking the highest share of the market at 40 percent, with Stan taking a 33 percent share and Presto 27 percent.

Netflix’s position as market leader is the result of its “strong track record in other markets and its global reach providing the ability to invest in own produced content.”, according to McLeish.

Despite those forecasts, Australia could be a tough nut to crack, said Hastings, telling News Corp broadsheet The Australian: “It may take some time. That’s fine, we’re patient.”