Tele Columbus explains reason for swerving Netflix

German cableco Tele Columbus is one of the few remaining tier 1 operators in Europe not to integrate Netflix into its pay TV programming. A panel of top pay TV executives at Cable Congress last week voiced split opinions on the trend of partnering with the SVoD service rather than attempting to stifle its growth – with Liberty Global reminding everyone as often as possible about how it partnered Netflix years before Sky’s recent move.

Virgin Media Ireland CEO Tony Hanway said, “Consumers are viewing it anyway. Netflix is now the third most viewed channel on Virgin Ireland – why would you not integrate it?” Cannibalization of TV subscribers is of course the primary deterrent for operators yet to take the plunge, but Hanway claimed Virgin Media Ireland has not seen any correlation between churn and opening up access to Netflix on its set top environment.

Liberty Global reports Virgin Media Ireland results together with its UK operations, making it difficult to assess the damage of cord cutting on its Irish operations, although the latest filing highlighted video RGU gains in the UK were only partially offset by decreases in Ireland.

Conversely, Tele Columbus CEO Timm Degenhardt said, “Kids don’t watch Netflix on the TV, so EPG integration is not the way to go. The trick is maintaining an open infrastructure, which is why we have Maxdome instead.”

Maxdome, owned by German public broadcaster ProSiebenSat.1, is Germany’s largest VoD library with over 50,000 titles and has signed up some 1 million subscribers since launching in 2006, but we don’t think Tele Columbus will hold out from a Netflix deal for much longer.

Despite Liberty Global’s enthusiasm about being ahead of the curve in partnering Netflix, Hanway maintains some reservations about how a Netflix partnership can reflect negatively on an operator. “I’m not a fan of integrating Netflix on the billing side. When you add the Netflix subscription price into a pay TV subscriber’s package, it looks bad on us because the bill has the Virgin Media name on it – so they associate their TV bill increase as being our fault.”

Vodafone Germany Chief Commercial Officer Manuel Cubero was asked for an insight into how the revenue share between Vodafone and Netflix works. Understandably he could not talk figures, saying: “We have an agreement to pay Netflix a share, just like the old days of pay TV,” referring to how paying broadcasters for carrying their channels is no different from giving Netflix a share of the spoils. Somewhat missing the point, Cubero failed to address the fundamental key difference from “the old days”, in that Netflix can be viewed without a cable or satellite TV subscription, and by integrating Netflix, operators are introducing certain subscriber demographics to OTT video.

Although denying cannibalization is a side effect, operators are upping content investments to keep pace with OTT video majors and this was the number one priority going forward among operators talking at Cable Congress. Hanway said, “Content will be key and telcos will go horizontal,” while Robert Redeleanu, CEO of UPC Romania and UPC Hungary, declared Netflix is not the be all and end all of TV, as in some areas of Central and Eastern Europe, Netflix is not subtitled in the local languages – meaning the content catalog is very limited.

Discussing industry consolidation, Virgin Ireland’s Hanway called the whole regulatory system “absurd”. There is a bitter taste left in the mouth of operators after acquisitions, as they must sit by and watch OTT majors continue to thrive while they are dogged by antitrust investigations – as streaming companies seemingly slide deals unchallenged through regulatory hurdles.

Hanway gave the example of how Hutchison Whampoa’s acquisition of Telefonica’s Irish mobile arm O2, for €780 million ($967 million), took 16 months to complete after the initial announcement in June 2013, yet just eight months later Facebook set its sights on WhatsApp in a $1.5 billion deal, which sailed through in about 60 days. Hanway’s point is that a social media monopoly was allowed to buy an OTT messaging monopoly with little to no objections. However, we feel it is irrelevant to compare operator M&A activity to OTT consolidation – comparing paid services with the potential to trigger anti-competitive price hikes in the market with completely free platforms.

The recently proposed merger of Vodafone Germany with Liberty Global’s Unitymedia is the latest in potential antitrust, a deal which would shock the market should the Bundeskartellamt and European Commission approve it. Cubero said the merger would “present an opportunity for Tele Columbus,” which itself was a target of Vodafone in 2013, after it had taken over Kabel Deutschland.