Normally we reach for the bucket when we hear pay TV incumbents welcoming the arrival of a disruptive and powerful competitor when everyone knows they are actually quaking in their boots. But there is some logic in such a reaction among pay TV incumbents in the Asian countries where Netflix has just arrived to shake up markets that are often antiquated in their regulation.
We are not talking so much about the richer markets like Japan, South Korea, Hong Kong and Taiwan with advanced broadband infrastructures and a more western light touch approach to regulation, with operators able to show Hollywood movies and US TV shows alongside local content with impunity. But in the key emerging markets like Vietnam, Philippines, Thailand and Indonesia, as well as in different ways India and China, pay TV operators often find themselves squeezed between the rock of censorship and the hard place of still rampant piracy. In fact, improving broadband infrastructure boosts piracy by stimulating online content redistribution and reverse gains made through past efforts against card cloning and control word distribution.
Netflix’ arrival will not have a direct impact on piracy, but could act as a catalyst for a regulatory revolution among local governments as they come under pressure to remove the straitjacket of censorship from local incumbents. This was what HOOQ, a joint venture between Warmers, Sony and SingTel group, had partly in mind when it extended a warm welcome to Netflix. Its co-founder and head of operations Krishnan Rajagopalan has expressed excitement over Netflix with the hope that it would generate a rising tide that would “lift all boats”. Except that is the boat of regulation which HOOQ would like to sink.
Of course by raising brand awareness and stimulating viewing there may well be some crumbs coming the way of HOOQ and other incumbents. But the biggest single gain would be a lifting of regulatory restrictions which have constrained pay TV operators in their own content development, but more especially in their ability to offer foreign material.
This is connected with the piracy factor, as was noted by John Medeiros, chief policy officer at the Cable and Satellite Broadcasting Association of Asia (CASBAA), back in October 2014 well before Netflix’ arrival. He argued then that the way governments were still controlling linear broadcasting as they had done for half a century, when capacity was limited to just a few channels in a common denominator mass market, was now driving viewers to pirated alternatives online in the absence of legitimate options to access the content they want.
The uncensored services offering content not available via the linear incumbents were only available from pirates, Medeiros pointed out, suggesting this was luring consumers into the “netherworld of internet bottom-feeders who advertise and support piracy websites.” This could only be changed by government action on both the ‘demand’ and ‘supply’ sides,” he insisted. Governments should channel demand for TV and movies to legitimate, authorized, taxpaying content supply routes, by removing their archaic regulations.
In this context it will be interesting to witness how these governments do respond to Netflix, with signs that one or two are trying to impose their old censorship ways. Soon after its launch in Indonesia, Netflix was blocked later in January 2016 by the country’s largest broadband service from state-owned Telco Telekom Indonesia, which expressed concerns about the content on offer, without specifying which.
Netflix was also accused of failing to have a necessary business permit, obviously a red herring. The government denied being behind the move, but is perhaps happy to let its Telcos at least impede Netflix’s progress. We must remember that Netflix has met resistance out of cultural imperialism in some countries outside Asia, including France.
From Netflix’ perspective such resistance means it cannot expect the instant success it has enjoyed in Europe, or even Latin America where it has amassed over 10% of the region’s 66 million broadband homes in around four years of operation. But Latin America offers a more coherent market than Asia, with just two languages, Spanish and Portuguese and common cultural factors. Asia Pacific is more like Europe, with many languages and diverse cultures, even if there is a common demand for some of the leading western movie, TV and sports content.
We expect Netflix to grow fastest in the significant markets with lighter regulation, that is Japan, South Korea, Taiwan, Singapore and Hong Kong, along obviously with India and China on account of their scale. For these markets Netflix will invest in local content production or acquisition as it has in Latin America and leading European countries. It will seek local co-production arrangements and also partnerships with Telcos to ensure QoS. In these major Asian markets Netflix will not take off as it has done in the US, Western Europe, Australia and Brazil for example, but will still hope to gain a strong position within three to five years.
In the emerging markets Netflix will be constrained both by the inability to justify significant investment in local content and limited availability of sufficiently fast broadband. There is also much lower ownership of smartphones and tablets in these countries, reducing scope for access to content on the move. Over time broadband footprint and device ownership will increase, while gradually Netflix will amass suitable local content, especially in larger countries like Vietnam and the Philippines, but it will take longer to become a major force.
Meanwhile Netflix’ arrival will stimulate the development of broadband in general and encourage other local OTT entrants serving perhaps niche markets. It could also, if regulations do ease, encourage regional operators to come in with services that embrace the same model of providing access to content subscribers have paid for wherever they are.
The Netflix ethos can be summarized as common rights for the whole world, although partly through those local regulations it has not quite delivered on this ideal even for its own content.
So while Narcos, Master of None, Making a Murderer, Orange is the New Black, Jessica Jones, Daredevil, and Marco Polo are available just about everywhere, House of Cards still cannot be viewed legally in Singapore, India, and Indonesia. But these exceptions apart Netflix, by bringing so much content OTT so many people in Asia, should finally undermine content censorship in most Asian markets.