Australian streaming services lock down content before Netflix

The rumoured arrival of Netflix in the Australian market in 2015 is not alarming the burgeoning video streaming players already up and running, due to the company needing to negotiate access to content on its local service.

It is common knowledge in the entertainment industry in Australia that US video streaming giant Netflix already commands around 200,000 subscribers in the Australian market despite the service not being available in the region. Customers in Australia sign up using a US postal address, and use a virtual private network (VPN) to circumvent the geoblock on the service.

ZDNet reported in June that Netflix is currently negotiating with rights holders in the Australian region with a view to launch in 2015, while the company focuses on its European expansion today.

In the meantime, however, Australia's own streaming on demand market is growing by the day, with Quickflix, and Ezyflix already in the market, with Foxtel recently launching its own video on demand movie service Presto now at AU$9.99 per month, as well as Fairfax and Nine planning their own StreamCo streaming service in the future.

Speaking yesterday at the ASTRA 2014 conference in Sydney, Presto's director Shaun James said that Presto was on the offensive, rather than defensive in getting into the market now before Netflix arrives.

"It's not defensive, we're playing offensive with Presto. Yes, there are some reasons for getting into that business and having first-mover advantage, and yes, we are using the benefits of being part of the Foxtel family, but it is very much an offensive. We're up and running, and we're going to be aggressive," he said.

James said that many consumers won't realise that a local Netflix will not have the vast library of its US counterpart because of those content deals signed by Foxtel and others to lock up the content.

"When Netflix comes... for the consumer that has used it, and Netflix has a phenomenal brand awareness in this market, it will be an inferior local service because of the rights that currently sit with Seven, Nine, Ten, the ABC, Foxtel and they've looked at this market and have seen that. So that's a challenge as they look to other markets," he said.

Cinema company Hoyts was due to launch its own streaming service in 2013, but CEO Damien Keogh told the conference yesterday that the plans were on hold due to the cost of setting up a service in Australia with the platform and the marketing to attract subscribers in a market where there are already a number of other players.

"Obviously Presto have launched, and you've got illegal Netflix downloads [sic] which people now anecdotally are saying there are a couple of hundred thousand in Australia," he said.

"In terms of building an SVOD business, content is expensive. I look at the content we were going for a specific genre, we were looking at a price point less than Presto, and the kind of money the studios wanted was significant. It was hard to get the business going. Then your marketing cost to get subscribers was quite high."

He said Presto was in a much better position than Quickflix and StreamCo due to being owned by traditional pay TV company Foxtel, but he predicted that there would only be two players in the market.

"Quickflix isn't very big, and not a great product," he said.

"With Netflix, they've got their illegal downloads [sic] here, I think they've got priorities in other European markets though where they'll make a lot more money before they come to Australia, so I think that in the end Netflix is the dominant brand in the US, I think it'll be lucky for two players to survive, but there will be one dominant player in the SVOD market."

Keogh said Hoyts was for now focusing on growing its DVD kiosk business, which is expanding from 650 kiosks across Australia to 1,000, and any streaming service would be an extension of that kiosk service.

Telstra's head of IPTV Eric Kearly said that stand-alone streaming companies would be difficult to survive in Australia, unless they were extensions of existing businesses such as Foxtel, or telcos, or were global businesses.

"Unless you do it on a huge international scale like Netflix. I think it is kind of endemic everywhere that none of the traditional players have the whole piece to new consumer behaviours," he said.

James also addressed customer concern that when Presto dropped the price of its service from AU$19.99 per month to AU$9.99 per month, it pulled out the linear movie channels from its service. He said only 1.5 percent of customers were watching those channels.

"We actually had the Foxtel movie channels in when it launched, and about 1.5 percent of our customer base actually watched content at a time in a linear sense," he said.

"I actually think it was less than one percent because we had our product guys testing it every week. There were some cost savings we were able to realise by pulling that product component out."

Quickflix is moving to differentiate itself from Netflix already, with the company offering pay-per-view on-demand content including HBO shows such as Game of Thrones which is not on Netflix in the US. CEO Stephen Langford said in a statement that Quickflix was leading the market in Australia.

"We have more content, available on more devices and we moved to AU$9.99 per month and Foxtel Presto has followed. We have a very competitive offering and we'll just keep on putting all our energy into improving the customer experience — we have much more focus than our competitors," he said.

"I didn't hear comments attributed to CEO of Hoyts bagging Quickflix — we're more interested in what our customers say than our competitors."