If the Nordic region has become the laboratory for OTT then traditional pay TV operators will not be too pleased with the results of the experiment so far. But the arrival in the Nordics of Netflix has proved disruptive also for the region’s local OTT providers, which have been scrambling to respond. Further spice was added by HBO’s decision to use the Nordics as a test bed for going direct to the customer rather than piggy backing on established pay TV operators, mostly cable, to distribute its premium channels. HBO launched this at the same time and it too has found it hard going competing with Netflix on the latter’s home ground of direct streaming.
Apart perhaps from Canada in 2010 the Nordics has on a per capita basis been by some distance the most successful international region so far for Netflix and instrumental in persuading the operator to resume its overseas expansion into the Netherlands, after an eight month pause to gather breath and allow finances to recover. During that eight month period ending June 2013 Netflix has taken the Nordics by storm, with firm evidence of rapid subs growth in all four countries of Norway, Sweden, Denmark and Finland.
The best data comes from Denmark, where TNS Gallup polled 1,103 adults around April 2013 finding that 8% of them used Netflix at least weekly. By contrast 4% of respondents used the YouBio subscription VoD service from MSO YouSee and just 1% HBO’s streaming service, which has been a flop so far. Most strikingly 400,000 of Denmark’s 2.6 million households, just over 15%, now have a Netflix subscription. This level of uptake is bad news for the established pay TV operators, because some of these new customers have been either cord cutting or at least cord shaving. According to a survey across the Nordics just published by YouGov, 11% of the region’s households have reduced their spend on pay TV by downgrading to a smaller package, while one in six pay TV customers are currently considering cancelling altogether.
This is a significant concern because the Nordics is seen as a bell weather for OTT for two reasons. Firstly, as in the UK the population, it enjoyed early exposure to OTT content via the catch up services of public service broadcasters. Secondly the region boasts a relatively advanced broadband infrastructure, providing bit rates and reliability sufficient for OTT to provide reasonable QoS. This is reflected in Netflix’ own monthly survey of broadband speeds covering just the countries in which it operates. Netflix gives average bit rates, which are way below the headline speeds cited by operators but which give a much more accurate idea of the QoS that the services deliver. Netflix has found that quite small differences in the average bit rate have a significant impact on QoS and so the latest figures reveal that the Nordics are doing well. In the US average broadband bit rate in May 2013 was 2.4 Mbps but with a big range from just 1.28 Mbps for Clearwire to 3.53 Mbps for Google Fiber at the top. More typically the range is much smaller, for example in the UK where the May average was 2.34 Mbps, ranging from 2.14 Mbps for ISP TalkTalk to 2.564 Mbps for MSO Virgin Media.
The Nordic countries all score a little higher, with Norway averaging 2.46 Mbps in the range 2.13 Mbps to 2.78 Mbps, Denmark 2.52 Mbps from 2.16 Mbps to 2.88 Mbps, Finland 2.55 Mbps from 2.28 Mbps to 2.89 Mbps and Sweden at the top with an average 2.56 Mbps ranging from 2.15 Mbps to 2.98 Mbps at OWNIT.
Broadband speeds are at least the same for all independent OTT operators in each country and the more interesting question is why Netflix has been doing so much better than the rest. Brand has something to do with it, along with the fact that it has had time and exposure to hone its offering and get pricing right after some well publicized early mistakes in its domestic US market. Ease of use and navigation have been cited in some of the surveys as significant factors as well.
But HBO has also had time to fine tune its offering in terms of navigation and has content that is equally popular in the Nordics, which has always been receptive to English language TV series, leading to trade in the reverse direction more recently in the case of crime series that are increasingly popular in the US and especially UK. HBO after all produced TV blockbusters such as Sex and The City, The Sopranos, The Wire, Entourage, Six Feet Under and Boardwalk Empire.
But HBO has less experience of the direct business model, having been going for years with its approach of selling as an add-on to existing services. This model served it very well for over three decades following its launch in 1972, enabling it to acquire 114 million subscribers, distributed more evenly around the world than most US content providers, leaving it still well clear of Netflix on 36 million. However Netflix has been gaining rapidly while HBO has stalled, particularly in its US heartland. Netflix put on 3 million subs early this year on the back of the success of its House of Cards series and Nordic growth, and has just overtaken HBO for the first time in number of US customers by the end of Q1 2013. By then Netflix had 29.17 million domestic subscribers, compared with 28.7 million for HBO.
HBO had been aware for some time of the need revamp its business model and at last enter direct relationships with customers. This became even more imperative as domestic subscribers have started to drop. HBO has introduced HBO on Demand, a revolving library of regular content that viewers can watch whenever they want. This is now in two million homes from several operators including Comcast and is helping reduce churn, according to MSOs. This still requires a cable TV subscription, but the content is then available pay as you go, just like many operators’ own VoD services.
HBO on Demand was a prelude to the launch of the Nordic OTT service, which has provided some salutary lessons. The main one concerns pricing, with HBO matching Netflix subscription costs, for example at around $14 per month, but requiring a commitment to six months up front. Netflix not only asked for no commitment but also offered its usual month free before subscribing, rather than calling for payment up front from day one.
Perhaps HBO had overestimated the appeal of its programming, but certainly the offering proved off-putting to new subscribers accustomed to OTT for free as a catch up service.
Strangely YouBio made the even worse mistake of not only imposing the slightly higher subscription price of 99 Danish Krona ($17.50) a month but also requiring the customer to purchase a set-top box. Even so YouBio did better and this probably reflects relative ease of use rather than national loyalty. A recent survey by The Diffusion Group of Danish OTT operators echoed other findings by putting Netflix top on this count followed by YouBio and then HBO.
There are signs of the lessons being learnt with HBO Nordic now emulating the Netflix month long free trial, while YouSee has enhanced the functionality of YouBio on Apple devices. This latest update to the YouBio app for iOS enables content streaming directly from an iPad to a flat panel TV via ‘video mirroring’. Content can now be pushed from the iPad onto a flat screen via an Apple adapter or an Apple TV box. When mirroring is enabled, YouBio servers automatically increase the bit rate up to 8 Mbps to deliver a flat-screen quality picture, assuming the broadband line supports that speed. This mirroring app via an Apple TV box requires a minimum of iPad 2 or iPhone 4S or later. Mirroring via the Apple adapter directly to the screen requires iPad, iPhone 4/5 or fourth generation iPod Touch.
The Netflix Nordics arrival in October 2012 pre-empted a flurry of domestic OTT launches including YouBio itself. Another one was Filmnet, a subscription VoD service backed by pay TV channels provider C More and broadcaster TV4 Group, offering movies from C More, which in turn had signed new deals with Fox, MGM, Paramount, NBC Universal, Sony, and HBO itself, as well as the BBC.
Around the same time triple play provider Altibox, which operates in Norway and Denmark, extended its existing IPTV service called Altibox Chill to OTT, adopting both HTTP Live Streaming (HLS) and Smooth Streaming formats to reach PCs, Macs and iOS devices.
Another OTT provider feeling the heat from Netflix is Viaplay, part of the Swedish media company Modern Times Group (MTG), operating across all four Nordic countries and also Russia. However Viaplay is in a stronger position than other regional rivals because it has more financial power and had established a substantial user base before Netflix arrived.
After the Netflix launch Viaplay extended its service to Sony PlayStation 3 gaming consoles across the region using an app developed by Swedish firm Accedo, already available on Smart TVs from Samsung, LG, Philips and Panasonic, as well as for PlayStation 3. More significant is Viaplay’s content arsenal, with a range of live sports including European football, exploiting rights owned by parent MTG. The impact of Netflix on Viaplay has been to contain growth rather than cause churn, with its rights proving sufficient to hold onto its customer base, although we only have the group’s word for that as they are coy about numbers. Still there has been a 14% rise in MTG’s share price this year.
For OTT then the Netflix impact is mixed in the Nordics and the same applies for satellite, which is generally holding up well and expanding in areas where broadband infrastructure is patchier. For MSOs the message is gloomier. There are growing signs that pressure is telling as cable TV gets squeezed between large scale broadband players with deeper pockets, such as Waoo! and Google Fiber on the one hand and the pure play OTT operators like Netflix riding over these, on the other.