ONLINE streaming services targeted at Asian viewers are attracting investments. Regional firms mm2 Asia and Gojek are entering the market, while tech giant Tencent has muscled in with its purchase of struggling iflix.
A boom in digital entertainment amid the Covid-19 pandemic may be contributing to the exuberance, but the troubles of iflix and Singtel's failed service Hooq suggest this is a tough game to win.
On Wednesday, Tencent confirmed rumours that it has purchased the assets of iflix to boost its own WeTV streaming service.
Tencent did not reveal how much it paid but Variety tagged it at "tens of millions of dollars", which an industry source corroborated with The Business Times. The Malaysia-headquartered iflix had raised over US$360 million from blue-chip investors including Hearst and Fidelity, and had in a 2017 funding round been valued at US$500 million.
BT understands that iflix has liabilities from the debt investments of its late-stage backers as well as from debt owed to production studios. The company had entered in years-long media rights contracts for expensive Hollywood content, one industry source told BT.
Another source estimated that prior to the deal, iflix had just two to three weeks of operating runway left. The company had burnt through its cash by expanding rapidly, including into the Middle East and Africa.
In spite of those woes, however, iflix managed to attract more than one interested buyer. As BT reported on Tuesday, Tencent had been in competition with Crown Media and Entertainment. The latter is an Australian firm led by Prabhat Sethi, the former managing director of Murdoch Media, as well as Peter Tonagh, the former chief executive of News Corp Australia.
BT understands that Crown Media was not just looking to turn around iflix's struggling business, but had even been exploring buying some assets from Singtel's failed streaming service, Hooq, to further strengthen iflix.
Crown Media is not the only company seeking a piece of the streaming market.
On Wednesday, homegrown film producer mm2 Asia said that it will launch an on-demand movie streaming platform, Cathay CineHOME. Earlier this month, Indonesia's Gojek raised external funds for its nine-month-old streaming service GoPlay.
Joongshik Wang, Asean head of strategy and operations at EY, told BT that the pandemic has indeed been a catalyst for the industry. But he also said the long-term potential of the market is real.
David Gowdey, managing partner of iflix backer Jungle Ventures, echoed this sentiment. "For many of the millennial consumers in South-east Asia, it's not that they are mobile-first but that they are mobile-only… We're only scratching the surface of what mobile-based content can get to," he said. (see amendment note)
To tap this potential, however, market players must find the right model. Mr Wang of EY said that, in South-east Asia at least, a sustainable model would be either advertising-driven or be a hybrid of advertising and low subscription fees.
This is because the South-east Asian market is still relatively price sensitive, he said. "The propensity to pay fees of US$8 to US$10 per subscription service per month is still low. Players that are able to get the best content economically, and retain a large number of subscribers will survive."
New players would also have to find a niche if they are to compete effectively with US behemoth Netflix, which has also expanded aggressively in Asia by commissioning Asian content.
Associate Professor Nitin Pangarkar of the National University of Singapore Business School said there is still room for growth even if few may match Netflix's scale.
"If the content is specialised, such as in Korean or Chinese language, and valuable, a company that is producing the content may be able to hold on to a loyal set of customers. If there are (a) few players having control of substantial content each, they can emerge as niche players in addition to a mainstream player like Netflix," he said.
Mr Wang of EY said traditional media firms might have an edge too, given that they already have a loyal customer base and may also have a bigger capital base. "Independent local OTT players and startups will need to spend a lot more both on customer acquisition and content, and may find it difficult to survive unless they can keep raising massive growth capital," he said.
Of course, Hooq was backed by a large company with a sizeable balance sheet. But it struggled to gain traction in its various markets. It may take a perfect combination of all the right ingredients for newcomers to build a streaming challenger in the Asian market.
Amendment note: The article has been revised to correct the spelling of Mr Gowdey's name.