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Netflix’s UAE launch: Will it cause a huge splash?

Netflix’s UAE launch: Will it cause a huge splash?

Christophe Firth offers five insights on Netflix’s recent expansion into 130 new countries worldwide

Netflix made headlines last week with its unexpected launch in 130 new countries, including the United Arab Emirates and Saudi Arabia in this region. But is it really going to send shockwaves through the market?

1. Content is king

The old saying holds truth in the world of online video just as it does in traditional broadcasting. Netflix’s success on the content side is based on exclusive rights to a few in-house hits (House of Cards, Marco Polo etc) and a well-curated portfolio of catalogue movies.

This has worked well in the the United States, United Kingdom and some other English-speaking markets and the common language across most of Latin America made expansion easier in that region. However, its library is generally not as compelling in other markets, while striking local content deals and/or producing original local programming (as it did with Marseille for the French market) will be more complex.

Until Netflix can build up similarly attractive propositions in its new markets, take-up may be slow and limited to niche segments.

The challenge it faces is that content owners will play hardball. Netflix benefited in the US from being an early mover while content owners were still figuring out their online strategies and managed to scoop up the online rights‎ without paying over-the-odds. Nowadays the rights holders are wiser to the opportunities online and will be mindful to hold onto enough of the right content for their own direct-to-customer services, as Disney has recently done in the UK with DisneyLife.

2. Being a late mover

By the end of 2015 many non-Netflix countries already had several indigenous dedicated over the top video services. India had Hotstar, ErosNow, YuppTV and others; the Middle East had Starz Play, icflix, Telly, Istikana‎, Shahid, and Cinemoz; South-East Asia had Hooq, icflix and others. Beyond this there are the pay TV operators’ own multiscreen offerings.

These services either have libraries of non-premium English movies of the type offered by Netflix and/or locally-tailored offerings. Despite its clever algorithms, Netflix offers little differentiation, and will have to decide how aggressively to compete for content rights in each market.

3. It is there already

While Netflix is a late mover in many of the more attractive markets, ironically it was already present globally even before January 6. In the UAE alone Netflix is estimated to have over 200,000 subscribers, mainly Western expats signing up to the US or UK Netflix service over virtual private networks. The official launch of a local service with a smaller catalogue will therefore have a more moderate impact than if the market was starting from zero.

4. Not being accessible to the mass market

Netflix faces three main challenges to becoming ‎a mass-market product in emerging markets. First, credit card penetration is low in most of these markets, while even amongst those with credit cards there is often a reluctance to use them as is the case for example in the Gulf states. Local OTT operators have sought to circumvent this through deals with mobile operators for direct carrier billing and using a prepaid mobile balance to subscribe to online video services.

Second, a monthly subscription of $7-10 per month is a huge amount in markets where people spend less than $5 per month on their mobile phones and usually do not pay for television (pay TV penetration in large regions such as the Arab world and Indonesia remains below 10 per cent, with free-to-air satellite still dominating).

Beyond this, prepaid mobile continues to dominate in cost-conscious markets where committing to monthly payments is not palatable to people. A change in consumer mindset together with more accessible price points is needed.

Thirdly, few people have the internet access speeds required to stream long-form video, let alone on high definition. High speed fixed internet in most of the 130 new Netflix countries is limited or non-existent, mobile data is prohibitively expensive and the public wifi and office networks used by many people for their videos are more suited to short-form YouTube-style video snacking than the long-form lean back experience that Netflix offers.

‎5. Piracy

‎Content piracy continues to blight the entertainment industry, with illegal online video streaming and download services proving even more difficult to control than cable or control word sharing. For example, it costs the pay TV sector in the Middle East and North Africa over $500m per year. Free is a difficult price to compete with and Netflix risks finding itself caught between free/ultra-low cost pirate services and regular pay TV services that are increasingly targeting the non-premium end of the market.

Netflix’s strong brand, marketing push and distribution partnerships will‎ help to give it a leg-up in its new markets. Its unique customisation features and famous algorithm-driven suggestion engine will also help. However, it will likely take time for the hype in its new markets to be matched by business performance.

Christophe Firth is a principal at A.T. Kearney Middle East

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