Disney deals another blow – beds Netflix’s younger, more exotic sister

We were quick to slam Disney for believing it can launch a serious Netflix competitor, given its track record of failed projects in OTT video, and Faultline Online Reporter stands by that point where North America and Europe are concerned. However, in a turn of events, Disney has struck a deal with Malaysian SVoD service iflix this week, hitting Netflix right where it hurts – in a market which is priority number one right now for the US SVoD heavyweight.

Unlike in the US, where Disney is planning to launch a duo of streaming services in 2019, the company has decided not to dive straight into a standalone Asian counterpart, but instead pump its content into one of its ex-partner’s fiercest rivals in the region – one which is experiencing tremendous growth.

Unsurprisingly, the most significant part of the deal boils down to the battle for original content, as Disney is partnering its production arm, Maker Studios, with iflix to produce original series. Netflix must react quickly and knock its original production strategy in Asia into overtime to build on the recent success of the movie Okja.

The original content market in Asia represents a make or break opportunity, but Netflix’s strategy is backed by a $16 billion original content production pledge over the next five years, which we doubt Disney and iflix will match. Iflix rolled out its first original TV series in July this year called Watch Your Mouth, a seven-part Malaysian stand-up comedy show.

Before original production kicks off, iflix is launching a Channels feature on its SVoD platform, with content from Disney’s Marvel Studios and Disney-Pixar Animation Studios, with movies such as Guardians of the Galaxy, Wall-E and Monsters Inc. Disney and iflix are also extending their existing deal for ABC’s hit series Grey’s Anatomy and Scandal.

Then in January 2018, iflix plans to bulk up on more lucrative Disney assets with the inclusion of Star Wars movies, Captain America, The Jungle Book, Finding Nemo and The Incredibles.

Iflix bagging the rights to show Disney’s crown jewels is a kick in the teeth for Netflix, which is battling hard to negotiate a deal to retain licensing deals for the Star Wars franchise.

Disney is another significant boost for iflix, having already tied up deals with Hollywood and most of the local telcos, and it secured $133 million from Liberty Global, Sky and US media group Hearst this year, on top of Sky’s $45 million investment in early 2015 in partnership with the Catcha Group and Philippine Long Distance Telephone (PLDT). Taking a shareholding in iflix shows Sky’s and Liberty’s Global intent to secure a place before Netflix can seize any significant foothold in Asia Pacific – and now iflix can boast the backing of a $168 billion (market cap) US mass media conglomerate.

A lot has been written about Netflix refusing to drop its prices below that of standard cable TV subscription in much of Asia, and Netflix must respond to this latest move from Disney by adjusting its price points in order to become more competitive. Particularly as analysts have come out this week suggesting that Disney will undercut Netflix by pricing its US entertainment streaming service at around $5 a month, according to MoffetNathanson. Iflix costs around $2 to $3, while Netflix is priced at $7.50 in most parts of Asia Pacific.

The service has grown rapidly despite being less established than the likes of Astro’s Tribe in Malaysia, and Rethink’s 2017 Asia Pacific OTT forecast shows that iflix signed up 5 million paying subscribers by the end of 2016, and is forecast to grow to around 6.5 million by 2021. Those numbers may well now accelerate with the aid of Disney and is heavily dependent on Netflix’s pricing structure, although we believe iflix is including a large chunk of free trial users in its final figure counting.

Because Netflix took a lot longer to get to this part of the world, the market had become more advanced and a little resistant to an outsider, so there is at least an opportunity for one or two more OTT networks to be successful, as well as Netflix. Iflix too was a latecomer, but has the obvious advantage of offering homegrown content.

However, it will take some years before iflix can turn its impressive subscriber uptake into financial success. The company brings in annual sales of around $100 million and is valued at $600 million today, but the company’s co-founder, Mark Britt, recently confessed that iflix is struggling to make profit. “Are we making revenues? Absolutely. Are we making money? No,” said Britt, speaking at a conference in Hong Kong last month.

Continuing the trend of Asian MNOs taking video in their stride, iflix this week selected mobile payments company Fortumo to launch direct carrier billing. Fortumo’s Payments API allows iflix users in Indonesia, Pakistan, the Philippines and Thailand to deduct the access fee from their mobile operator balance.

This is a popular payment method across Asia Pacific, as less than 10% of people in the emerging markets where iflix operates own a credit card, according to Fortumo. The feature has been made available for subscribers to the mobile operators Smartfren and 3 in Indonesia, Telenor and Zong in Pakistan, Smart Communications (part of PLDT) and Globe in the Philippines, and DTAC in Thailand, with plans to expand the Payments API to MENA in the coming months.

Iflix was founded in Malaysia in 2015 and only started trading in May 2015 – expanding rapidly across Asia and MENA. Disney content will be available to iflix subscribers in Malaysia, Indonesia, the Philippines, Thailand, Brunei, Sri Lanka, Pakistan, Myanmar, Vietnam, the Maldives, Kuwait, Bahrain, Saudi Arabia, Jordan, Iraq, Lebanon, Egypt, Sudan, Cambodia and Nigeria.

Iflix also recently formed an African arm to spread its service to countries in the Sub-Saharan region, with headquarters in Cape Town, covering Nigeria, Ghana, Kenya, Tanzania and Zimbabwe in the third quarter of this year. Major competitors to iflix and Netflix in Asia Pacific include Hooq, YuppTV and PCCW’s Viu.

Iflix Chief Content Officer Sean Carey said, “Disney has a story for every age. Iflix is committed to providing the best in entertainment from around the world and this SVoD partnership in the region will bring Disney brands and premium titles to our members across the region.”

Disney’s GM of Media Networks South East Asia, Amit Malhotra, said, “Through the extensive library of content available on the new Channels feature, fans of all ages will have a unique access to their favorite stories and characters anytime they want.”