Telefónica seduction successful – which operators are next for Netflix?

Telefónica is preparing to be the first major operator of 2018 to integrate Netflix into its pay TV offering, in a long line of traditional TV providers accepting their fates – a twist which may have been ignited by a bemused Telefónica boardroom studying Netflix’s seemingly unstoppable trajectory after last week’s set of results.

The Spanish TV market leader has stood firm since rumors surfaced last year about negotiations between the two. According to reports from local Spanish news outlets, speaking to sources at Telefónica, Netflix CEO Reed Hastings and Telefónica President Luis Miguel Gilpérez have held discussions to provide Movistar+ subscribers with Netflix content on set tops in the next quarter.

Befriending Netflix rather than battling it has been a standout trend for pay TV operators over the past two years. With Telefónica becoming the latest, it gives us a chance to assess the remaining major operators which are still holding a defiant stand against the SVoD giant, many of which will eventually surrender. Is it really more beneficial than detrimental for pay TV players to welcome their most prolific enemy into their homes with open arms? Quite simply, the answer is yes, and the reason is both convenience and the realization that if it does not offer Netflix, it is a bigger reason for customers to move elsewhere.

Western Europe paved the way for Netflix integration deals, beginning with Liberty Global’s Virgin Media in the UK back in 2013, leading to smaller distributors such as RCN Telecom Services in the US following suit, before eventually Comcast, Charter, Dish Network, Altice USA (Cablevision and Suddenlink), Cox Communications, Mediacom and many other smaller operators all conceded. Also in North America, Bell Canada, Rogers Communications, Cogeco and Telus of Canada, have all signed up.

Liberty Global has integrated Netflix in 30 countries across Europe, Latin America and the Caribbean, as has Deutsche Telekom in 7 European countries. Netflix can be found at Altice and Orange in France, Com Hem and Telia in Sweden, Telenor in Norway, DNA Oy in Finland, KPN in the Netherlands and Telecom Italia, to name a handful of major players.

Vodafone has partnered with Netflix for mobile delivery all over Europe including Spain, but no pay TV partnership has been mentioned yet. Vodafone Germany therefore looks like a primary candidate to be the next major operator to integrate Netflix into its pay TV service, the business Vodafone bought into via the acquisition of Kabel Deutschland.

In North America, we would not be surprised to see Shaw Communications be the next to carry Netflix and instead focus on TV Everywhere, having failed dramatically on the SVoD scene with Shomi.

AT&T and Verizon are of course the standout absentees. A future where these US giants offer Netflix to traditional pay TV subscribers is not entirely beyond the bounds of possibility, but both would rather try out the route of buying up content and technology businesses first.

Striking deals with MNOs is arguably easier than winning over pay TV operators, with Netflix streaming already accounting for such a huge share of network bandwidth, it makes sense for the network operators to offer unlimited data plans with Netflix streaming benefits included.

As far afield as South East Asia operators are now offering Netflix, notably DTH satellite provider Videocon d2h, bringing Netflix content to millions of homes, as well as Softbank in Japan and Telstra in Australia. However, in much of Asia and even parts of Central and Eastern Europe, Netflix is priced much higher than local services. If Netflix were to eventually lower its pricing, this would encourage more operator partnerships in that part of the world, but Netflix has never addressed this as an opportunity being considered. Perhaps it is waiting until it has more local content to make it irresistible, before going that route.

In Europe, Sky is perhaps the only operator Netflix will never succeed in partnering. Not only is Sky transforming its TV business to an all-IP operation, aiming to fend off Netflix with its own Now TV streaming service, but is poised to come under Disney ownership – a company whose streaming ambitions are well documented.

Telefónica would be wise to expand its Netflix partnership to Latin America, where its Vivo Play OTT offering has not had significant success over its five years of operation in Brazil, although its streaming service Movistar Play has seen better fortunes in Telefónica territories such as Argentina and Chile.

Telefónica’s Movistar has 3.7 million pay TV subscribers in Spain while Netflix has signed up 1.2 million since its Spanish debut in 2015. Telefónica’s latest Movistar series serves up multiscreen purely for OTT mobile delivery, not for the TV.

Partnering Netflix might just delay the onslaught of cord cutting, giving operators a sliver of respite back at the drawing board, and by doing so, it will also benefit set top suppliers and all the technology vendors which go hand in hand with hardware.