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Cosying up to Netflix

StarHub and Singtel have formed an uneasy alliance with internet-based video-on-demand service Netflix. But will this prove to be a case of strange bedfellows?

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"I don't think we'll stop subscribing to cable because there are still programmes we watch on it." - Shen Tan, executive chef, who subscribes to both cable and Netflix

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Today, Netflix has built a growing arsenal of original productions such as Stranger Things which have infiltrated living rooms and become bingeing staples. Sci-fi and horror fans, who grew up with movies such as Gremlins and TV shows The X-Files, consider Stranger Things alone worth the price of a Netflix subscription.

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Even as Netflix makes the fight for airtime an extremely local and regional one, it is not the only OTT service doing battle for Asia's eyeballs. Some have even been fielded by its Internet service provider partners. There is StarHub Go, for one thing. And Singtel's OTT service HOOQ, which is set to release its first original production soon.

MARC See does not do several things. He does not watch local TV programmes. He does not buy movies or TV shows a la carte. And, crucially, last year he stopped doing something else. He stopped subscribing to Singtel TV. What the 39-year-old auditor does do, however, is subscribe to Netflix. “My wife wanted to watch a Japanese series, Midnight Diner: Tokyo Stories and it wasn’t available elsewhere,” Mr See says, explaining what made him sign up for Netflix.

This month marks Netflix's first year in Singapore, and it is easy to imagine Mr See's decision-making process unfolding in various iterations across the island. Countless viewers like him, cutting off one service and plugging into another, in single-minded pursuit of a show based on a best-selling manga, with loving shots of steaming bowls of tan-men and omu-rice.

Since its launch here last January, has Netflix fused our television universe into a glorious nirvana of Any Show We Want, Whenever We Want? Has its arrival finally ushered us into the promised land of cord-cutting starting from a low, low price of S$10.98 a month?

The reality is rather more nuanced. For many of us, Netflix has become yet another figurative cord in the growing tangle of content that we are faced with.

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Shen Tan, for example, has hung on to both cable and Netflix. The 44-year-old chef subscribes directly to Netflix for its original content, especially the food documentaries. While she finds herself watching more international content on Netflix than she did when she only had cable, that alone isn't enough for her. "I don't think we'll stop subscribing to cable because there are still programmes we watch on it," she says.

Netflix, it appears, has been complementing cable TV here instead of outright replacing it. Part of the reason is that Netflix's content catalogue does not duplicate programming on local TV channels, and does not always have mainstream blockbuster movie releases.

This wasn't always the case. When Netflix was first launched in the US in 1998 as a mail-order DVD rental business, it was indeed positioned as a comprehensive offering. And when the company added video via the Internet a decade ago, that was still its brand proposition.

But five years ago, Netflix parted ways with content licensing group Starz - a contract that had included a great deal of Sony and Disney content. That major turning point saw Netflix increasingly focus on original content, along with a pared-down - and therefore less costly - catalogue of licensed content, which brought Netflix to where it is today.

By last year, a widely reported post in September by streaming industry blog Extreamist estimated that Netflix's catalogue had shrunk by half since 2012.

Complicating things is the fact that Netflix's catalogue varies by country. Its eventual goal is to standardise its content globally, but that will take time. Older content licensing agreements exclude countries that Netflix wasn't yet in when the deals were inked.

As those legacy contracts expire, Netflix tries to renegotiate them to include new markets. Until then, some will continue to try and access Netflix through virtual private networks even though Netflix took the controversial step of banning them last year. A truly standardised content library might even be impossible because there may always be a lag between shows produced in one market becoming available locally, and those shows being syndicated globally. These gaps in its local offering are partially why an uneasy alliance has formed between itself and local pay TV services.

StarHub, for example, allows its customers to sign up for Netflix through StarHub's Fibre TV set-top box, or through StarHub's website, after which Netflix becomes simply another cable TV channel (525 or 899). There's no difference in price or service compared to signing up directly with Netflix, nor contract lock-in, and you even get your Netflix bill bundled with your StarHub bill.

Frenemies?

This cosy relationship stems from what StarHub sees as pay TV's biggest competitor here: piracy, not Netflix or other over-the-top (OTT) services, according to a StarHub spokeswoman. So, anything that allows StarHub to offer more content on its platform at no cost, and makes it easier for people to subscribe to Netflix, is a win for both companies.

That's also probably why Singtel offers similar access to Netflix for its subscribers through Singtel TV set-top boxes at the same prices and with carrier billing - even though Singtel has its own cable cum video-on-demand service, Singtel TV, and its own OTT services such as HOOQ, in which Sony Pictures Television and Warner Bros are also partners.

"The availability of Netflix on these household names is helping us gain traction with the wider Singapore population," says a Netflix spokesperson in reference to its partnerships with Singtel and StarHub. "M1 recently announced an unlimited video data post-paid plan which we are part of," she adds.

"I would characterise the existence of Netflix and other OTT players as a 'love-hate' relationship for local telcos," says Ovum principal analyst Clement Teo. He also notes that even when pay TV operators offer OTT services, these services are constrained by the risk of cannibalisation. Pay TV operators use OTT services to reach viewers who wouldn't otherwise be their customers, says Mr Teo. It's a means to an end - retaining market share - as opposed to a revenue model. And it's a gambit that can't be pushed too far because of the risk of upsetting pay TV customers if they see others getting premium content cheaply.

It remains to be seen if this alliance will come under strain. Already, as at end-September 2016, StarHub's pay TV subscriber base had fallen from 536,000 to 507,000 since the end of 2015. Singtel TV also saw its residential subscriber base shrink by 12,000 over the first nine months of 2016. "The rise of TV viewing alternatives, coupled with a larger out-of-contract customer base over time, could have contributed to the dip in our pay TV subscriber numbers," admits Justin Ang, StarHub's head of product.

However, this dip is in part a migration to StarHub's own OTT service, StarHub Go, which "registered a seven-fold growth" from end-2015 to end-2016 - growth that Mr Ang attributes to StarHub's efforts to expand its StarHub Go catalogue, add interactivity, and make the service easy for even non-StarHub customers to try.

StarHub Go costs between S$9.90 and S$24.90, and gives you access to everything from drama to sports, depending on which package you choose.

StarHub's efforts to innovate haven't been restricted to StarHub Go, and "include adding fresh and compelling channels, shortening telecast windows, offering time-shift options, and even incorporating social TV features such as Facebook and Twitter on our Fibre TV", says Mr Ang.

Over at Singtel, the telco giant's report for the quarter ended Sept 30, 2016 notes: "While the number of traditional pay TV subscribers declined by 4,000 from a quarter ago, the number of customers who have signed up for on-the-go services, namely the Cast OTT and Singtel TV Go companion apps, grew 10,000 in the quarter to 22,000 as at end-September 2016."

The pay TV and OTT markets seem "to be in a state of equilibrium so far", says Ovum's Mr Teo, adding that pay TV subscriber declines represent a shift "across platforms of video consumption rather than an outright move to a competitor".

Coming to a single screen near you

Netflix might not have fully displaced conventional cable TV, but its hold on the local TV-watching landscape grows stronger every month, thanks to its original or exclusive content.

Today, Netflix has built a growing arsenal of original productions such as House of Cards and Stranger Things which have infiltrated living rooms and become bingeing staples. Some science fiction and horror fans, who grew up with movies such as Gremlins and TV shows The X-Files, consider Stranger Things alone worth the price of a Netflix subscription.

At the same time, Netflix, which non-US viewers had mostly seen as a way to access premium Western content, is gaining regional flavour.

Its catalogue of original programming includes a post-apocalyptic Brazilian sci-fi series called 3% and Club de Cuervos, a Mexican dramedy. Last October, principal photography began on Netflix's first German series, Dark. And this month, Netflix announced its first original Korean series, Love Alarm, which is based on a popular webtoon.

For the first time in television, viewers have access to non-US fare that has been shellacked with the slick gloss of Hollywood production values, bearing subtitles that do not contain hilarious gaffes of mistranslation.

Even as Netflix makes the fight for airtime an extremely local and regional one, it is not the only OTT service doing battle for Asia's eyeballs. Some have even been fielded by its Internet service provider partners. There is StarHub Go, for one thing. And Singtel's OTT service HOOQ, for example, is set to release its first original production soon, starting with a new TV series in the Philippines.

Its chief executive Peter Bithos isn't worried about competing with Netflix because of the opportunity that he sees for local content.

"HOOQ is a service built in Asia for Asians," says Mr Bithos. "Content is the key differentiator - from the very beginning HOOQ has been the only player focused on delivering a deep local content library. Today, HOOQ customers can enjoy over 10,000 movies and TV series from the largest catalogue of Hollywood, Asian and kids content."

Mr Bithos adds: "Each country's catalogue is tailored to the customers' needs and HOOQ partners with the top domestic studios in order to deliver the best local catalogue. This blend makes the catalogue relevant and interesting for different segments of audience."

HOOQ launched in November last year and is available here as well as in Thailand, India, Indonesia and the Philippines. It is accessed through Singtel's Cast OTT video portal app, and also comes bundled with select Singtel prepaid mobile plans, with promotions for Singtel's postpaid, broadband and TV customers set to roll out within the first quarter of this year. More than 80 per cent of HOOQ's customers use the service on mobile devices. This battle will only heat up with Amazon's arrival. In December last year, the e-commerce giant's Prime Video service launched in Singapore as part of a global rollout.

"Amazon is Netflix's key competitor in virtually all of the markets in which it operates following December's Prime Video global rollout. However, the two services differ in terms of both strategy and offering," says Ovum's Mr Teo.

"Amazon has until now largely used video to build the value proposition of Amazon Prime subscriptions. In short, Amazon's core offering has been online retail, not digital video. The flagship subscription service, Amazon Prime, bundles free delivery of retail products, data storage, music streaming, video streaming, and more recently, game streaming through Twitch Prime. For Amazon, video is important as one of the many distinct drivers of Prime subscription sales."

Feedback from some early adopters of Amazon Prime Video here is that there isn't enough content available in Singapore yet to make it compelling, which shows that Amazon is also grappling with the challenge of standardising its content catalogue internationally.

Like Netflix, Amazon has been building a stable of titles that it can call its own, such as a Jeremy Clarkson automotive show called The Grand Tour, which it used to headline its global rollout. And it's got plans to beef up its catalogue. "In terms of roadmap for content, we'll continue to add a full line-up of fresh new original programming from some of the world's greatest storytellers and entertainers to Prime Video globally in early 2017," says an Amazon Prime Video spokesman.

But the content overlap between various platforms, at least in this region, is underwhelming. Today, we discuss TV as though it were a seamlessly connected smorgasbord of content, liberated from the tyranny of pay TV. But to the law-abiding cord-cutter, many popular programmes might as well exist in parallel universes, confined as they are to their own silos. Committing to one platform means giving up chunks of content exclusive to another platform.

Already in the US, the disillusionment has set in, with many deeming the cord-cutting dream a myth. There, viewers grapple with a myriad dizzying choices - DirecTV Now, Hulu, Netflix, Sling TV and Vue - that threaten to merge into a package that is more costly and unwieldy than a cable TV subscription.

"...To avoid overspending, make a spreadsheet," a November 2016 story in The Wall Street Journal tells potential content-streamers. It is unlikely that early fantasies about the Utopia of on-demand content had involved a spreadsheet.

Where does this leave the (again, law-abiding) consumer here in the era of peak TV?

For now: in a rictus of delicious agony, with more top-notch content than they will ever have time to watch, flung out like disparate constellations across an ever-more fragmented universe.


What's the deal with Netflix? An instant replay

NETFLIX launched in Singapore just over a year ago, on Jan 7, 2016. For a flat monthly fee of S$10.98-S$16.98, you can watch thousands of movies and TV shows on your TV, computer or mobile device.

Netflix is an over-the-top (OTT) service, which means that it rides on top of Internet connections, hence the term. OTT also usually refers to services that bypass more conventional offerings by pay TV providers such as cable.

The reality isn't quite so simple however, because the Internet infrastructure that OTT services ride on is owned and operated by telcos and Internet service providers (ISPs) such as Singtel and StarHub - competitors with whom they often have to form an uneasy alliance.

StarHub is a great example. As a cable TV provider, it's a competitor to Netflix. But as an ISP, it's essentially Netflix's utility company.

Just how big is Netflix in Singapore? It's hard to say. The Info-communications Media Development Authority of Singapore released its first OTT Video Study last year, but it was conducted between October and November 2015, before Netflix's Singapore launch in January 2016, and therefore doesn't capture Netflix's growth. It does note, however, that 54 per cent of viewers had watched online videos.

In survey company YouGov's BrandIndex Brand Advocacy Ranking 2016: Singapore,

Netflix doesn't figure in any of the top brand advocacy rankings, even though StarHub, Singtel, Facebook and Amazon do. That suggests Netflix still has work to do in order to make a lasting impression on the average Singaporean, which Netflix might just have to court after its virtual private network (VPN) ban lost it the goodwill of many early adopters, who used VPNs to access Netflix's US service before it was officially launched here.

In its quarterly report released this week, Netflix revealed that it ended 2016 with almost 94 million subscribers. Nearly 20 million were added last year. But what's more interesting is that 5 million of those were added from outside the US within the last quarter alone. Almost half - 47 per cent - of Netflix's 94 million users are now outside the US.

So while there's no breakdown of Singapore's numbers, global growth seems to have been brisk. Netflix's quarterly letter to shareholders said it expects to add 3.7 million subscribers from outside the US within the first quarter of this year.

Ovum says that in 2016-2020, Netflix is likely to add more than 10 million new subscribers each year, and come 2022, the total number of subscriptions worldwide is set to exceed 150 million.

Based on Netflix's 2016 numbers, its subscriber base grew about 25 per cent over 2015. However, despite the addition of more than 130 new international markets last year, Ovum principal analyst Clement Teo says that the service's subscriber growth rate is set to fall and will soon hit the mid-teens.

By the end of the current forecast period in 2022, the annual growth rate is expected to drop below 10 per cent.

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