It was the debut that made television executives nightmares come true all at once. Sure, Netflix has done well in the US, but Australia is a different market, right? With different content and viewing habits? And we already have an entrenched pay-TV operator and a few subscription video services and catch-up TV options…
Before launch, we saw Foxtel dramatically cut its prices, and launch an online-only version of itself called Presto. Nine and Fairfax have launched Stan. All of the free-to-air networks have some sort of catch-up television app. They were as ready as they were ever going to be…
Yet despite the best efforts of almost every major media company in Australia over the past 12 months, Netflix has landed here in Australia — with an almighty impact. Internet company iiNet — which gave its customers unmetered access to Netflix — has reported that Netflix has been responsible for up to 25% of its total traffic — up from only 3% before the Australian launch. It's easy to skim over that 25% figure, but let's back up a bit. One in four bits of data sent to iiNet's customers is now coming from Netflix.
Other telcos haven't been prepared to release their data, but it's fair to assume they're getting somewhere near that number. Optus is similarly unmetered, and while Telstra's customer mix and lack of unmetered access means it'll likely skew lower, Australians clearly love what Netflix is offering.
It was three years ago that I warned investors to avoid Australian Netflix-wannabe, Quickflix (ASX:QFX), and its shares are down 98.5% in that time. Netflix's triumphant arrival in Australia may not be the final nail in the Quickflix coffin… but I wouldn't bet against it.
Perhaps those with most to fear, though, from the arrival of Netflix are the broadcast networks. Its arrival not only heralds some major competition, but also a seismic shift in the way we consume our entertainment.
To get a picture of what it might look like, let's review the pre-internet media landscape, particularly print media. There was a time when consumers paid for a physical newspaper, which contained news, sport, business and — perhaps most importantly — classifieds. For advertisers, it was one of the only games in town, and readership was very large.
Then came disintermediation — the breaking up of the component parts of our weekday and weekend read. Suddenly, you could go to a single website for job ads. Another one for houses, and yet another for cars. You could get your news, sport and weather — for free — from a number of different sources. And advertisers could suddenly see just how well their advertising was performing — and pay accordingly. No longer could a single platform command readers, advertisers and profits as it once had.
Now look at the broadcasters. One platform with three commercial and two government networks. Each an amalgam of news, sport, weather, drama, comedy and 'reality' entertainment.
Now think about the modern television landscape. News comes more quickly via the internet (paid and free). Weather is an app away. Major sporting codes have their own smartphone apps and websites, and most have online streaming deals. Most of the entertainment we watch is sourced from overseas — the rights to which could be gobbled up by Netflix, Amazon.com or any number of alternatives (including, in time, the likes of YouTube or Apple TV).
Whether you're Ten, Nine, Seven or Foxtel, you're right to be worried. Paranoid, even. It's why they've hurried to find streaming and subscription alternatives. The problem is that in the internet age, content is king. When your business is built around transmission of others' content, you'd better change — and fast.
To be fair to the broadcasters, they've been quick to recognise the threat. They're trying to respond. Original programming and (for now, at least) sports broadcast rights will see them remain relevant. They're moving online. But you have to wonder how long the industry can sustain the current number of players, and the level of profits it's been enjoying to date.
There may well be winners, but the players face a risky and uncertain future. It's a brave investor who puts their money on the line while it plays out.
