SVOD: Netflix surge threatens free-to-air TV

Media watchers around the world find no surprise in the move away from traditional forms of television. The writing has been on the wall since the turn of the century that the child of the digital revolution — internet protocol television — would become a substantial threat to incumbent free- to-air broadcasters and their ­subscription-based cousins.

But what is surprising is the speed of change we are now seeing. It is not just fast or super-fast — it is happening at warp speed.

Credible analysis of internet traffic suggests that Netflix, the international market leader in providing subscription video on demand through IPTV-based streaming, already has more than 1.5 million customers in Australia. As one analyst told me: “the smart money was that Netflix would have 2.2 million Australian subscribers by 2020. I think they’ll have that by the end of 2015.”

Netflix does not declare its subscriber numbers in various markets, a tactic designed to maximise its negotiating position when it bids for rights. But we know in the first quarter of 2015 it had 42 million customers in the US and 21 million in the rest of the world.

Netflix came to Australia in March this year, so very little of its Australian customer base would be reflected in those first quarter figures. Since March Netflix has been pushing its Australian services in competition with Presto, backed by Foxtel, Seven and Ten, and Stan, a Nine and Fairfax start-up. None of the parties are shouting their audience numbers from the rooftops, in part because many customers are testing their appetite for video on demand through free sign-up deals for the first month.

Active subs may not be paying subs.

Back in the days when three commercial and two public channels amounted to the total TV offering, FTA had 100 per cent of the nation’s eyeballs. After Foxtel, FTA maintained around 80 per cent of the total audience.

If Netflix and other SVOD operators steal away another 20 or 30 per cent — as they inevitably will, in time — then FTA faces a triple whammy: falling viewer numbers, smaller audiences to attract advertisers and tighter advertising conditions as the digital migration continues. This, in turn, erodes its ability to produce high quality, compelling content capable of attracting large audiences.

Of course, the FTA industry is not without the means to fight back. It remains strong in live events, whether they be news, sport or network-manufactured “must see” events such as MasterChef, The Voice or My Kitchen Rules. But news, sport and faux events don’t fill a 24/7 schedule.

Seen from this perspective, there is no surprise in the stockmarket reaction to the FTA market leaders in Australia. The Nine network floated last year at $2.10 and traded as high as $2.35 at the end of May this year. It closed at $1.39 on Friday.

Seven West Media was trading above $2 a year ago and is now 93c.

These figures reflect the new reality.

Mark Day, Columnist – The Australian July 13, 2015

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