Netflix’s global launch strategy is quite different from how the company previously approached new markets.
In the past, Netflix adopted strategies that differed from country to country. For example, in countries such as the Netherlands, Australia and the United Kingdom, Netflix focused on regional preferences and acquiring appropriate content before launch; in other words, it emphasised providing a service that was specifically tailored to a launch country.
However, by launching its service to 130 countries simultaneously – in a move announced on January 6 – Netflix appears to have abandoned this previous strategy, perhaps spurred by the interest of other players in rolling out similar services in those countries. Netflix most likely decided on this global launch (excluding China, Syria, North Korea and the Crimea) irrespective of factors such as local connectivity, price sensitivity or regional acquisition of content. This tactic points to a launch-then-build strategy that aims to gather as many subscribers as possible and prevent potential customers from selecting local providers instead.
Perhaps unsurprisingly, the current content that is available on Netflix in both the Mena and Africa regions is much less than what is available in the UK or the United States. Netflix has historically sold the rights of its successful, big-budget original productions such as House of Cards to pay-television networks in regions where it had no previous operations. As such, there will be a content shortfall in localised versions of Netflix until these contracts come to an end.
That said, Netflix will begin to hold on to the rights of its original productions over time, which means that it will be difficult to compare the content on Netflix on launch day to the content that will exist at some point in the future. This means that Netflix will effectively close a large revenue stream.
Presently, there is a plethora of locally launched subscription video on demand (SVOD) services in the Mena and Africa regions. Some services are backed by big studios, while others are backed by venture capitalists or incumbent broadcasters. By operating before Netflix’s roll-out, these providers have already began the land grab, not only for subscribers but for content rights as well.
In the Mena region; OSN’s Go Online TV, Starz Play, Icflix and others all compete in the premium SVOD space in which Netflix operates. Exclusive and predominantly western content, subtitled in Arabic, is a key driver of services uptake; some services also offer Arabic and Bollywood content to attract subscribers. In Africa, there are a multitude of content services, including Multichoice’s Showmax, MTN’s Front Row, as well as iRokoTV and Afrinolly. (The latter two originate in Nigeria but are available across Sub-Saharan Africa).
Given the multitude of providers, acquisition of premium content is an expensive but necessary strategy that is needed to operate in the competitive environment. Therefore, from an industry perspective, it is essential for existing SVOD players to negotiate local deals to add additional content; this will also be fortuitous to local production industries.
Nollywood content produced in Nigeria, as well as Arabic-language content across Mena (which is beginning to be made in the Middle East), will become more valuable and sought after as competition intensifies going forward.
Netflix will face a new dynamic in trying to be an exclusive content owner while acquiring additional content across multiple regions. While having mass appeal, Netflix’s own productions in isolation are not enough to offer a truly wide and deep SVOD service. Consequently, Netflix will continue to be a buyer of content (as well as producer of content).
MEA pay-television networks such as OSN and Multichoice’s DSTV that have previously acquired premium content rights from Netflix will now look to plug the content gap.
There is already a movement by some networks to secure exclusive content from other brands – for example, OSN announced that HBO and BBC channels are exclusively available on its network, while DSTV distributes Viacom channels such as Comedy Central, Nickelodeon and MTV along with BBC and CBS-branded offerings.
This move to continuously secure high performing, recognisable brands will help attract subscribers and develop a more varied offering of content.
With a plethora of countries now included in the roll-out, the nuances of developing markets will have to be considered. For example, obtaining payments may prove to be complicated, as Netflix has not previously operated widely in countries where credit cards are not prevalent. Presumably, Netflix will roll out payment cards, but doing this across 130 countries will be no mean feat.
In Mexico, Netflix made prepaid scratch cards available because of low credit card penetration.
Moreover, prepaid cards are not a widely accepted method of payment, even in the MEA region. In Kenya, for example, prepaid cards are not available, hence mobile money needs to be included as a local Netflix payment option.
In Egypt and Morocco, the penetration of credit cards is almost non-existent, so alternative methods of facilitating subscription will need to be rolled out.
Initially, service providers will take advantage of localised knowledge to compete against Netflix. For example, cash on delivery and subscription through telecoms services are already well established and serve as alternatives to credit-card-only registrations for SVOD services. Such alternatives may leave Netflix at a disadvantage during the initial launch of its services.
Going forward, market consolidation may prove to be inevitable, particularly as the content and experience of services providers in the region overlap by varying degrees. To acquire the content that it will desperately need, Netflix may decide to take over or collaborate with existing service providers.
Tracey Grant is the programme manager for digital media and broadcasting at IDC MEA.
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