Netflix Inc, a popular US based video streaming service, has started to make its way into conversations regarding Singapore’s telecommunication companies.
Starhub Ltd (SGX: CC3) said in its recent earnings presentation that it is in commercial discussions with Netflix. In another earnings call, Singapore Telecommunications Limited (SGX: Z74) was asked about its strategy in partnering Netflix.
From these exchanges, it would seem like Netflix is seen as both a threat as much as an opportunity for the local telcos. But, which is it really?
To understand whether Netflix is a threat or opportunity, we should first understand what Netflix brings to the table.
Threats:
"Scale: Both Singtel and Starhub do collect more sales per subscriber, though. In the past twelve months, Singtel had recorded revenue of $228 million from its 423,000 Singapore subscribers while Starhub clocked in $391 million in Pay TV revenue. Netflix, in comparison, generated US$6.4 billion in revenue."
"Big Data: At the end of September this year, Netflix had 69 million subscribers worldwide. In contrast, Starhub had reported 542,000 Pay TV subscribers while Singtel recorded 683,000 for its Singtel TV / Optus TV services."
Opportunities:
Notably, Netflix still needs a broadband connection to deliver its content into customers’ homes. These home broadband connections, in Singapore at least, are offered by Starhub, M1 and Singtel. As such, the local telcos have the opportunity to work with the U.S. streaming giant.
"So the benefit to us is the brand association that goes with Netflix and the fact that they don’t just get access to the internet but they also get content bundled with it, and we get the uplift in terms of people coming to us for that.
So I think that is the major sort of impact that we get as a result of linking it up to Netflix and creating that brand awareness and that brand association within something that’s relatively new and the Optus brand which stands for Living More Yes. So I think that’s the sort of benefits at the two levels that we get.”
The risk, of course, is that the deals may not be exclusive. The trio of local telcos may end up competing on offering the better bundle or worse, being a “dumb pipe” to a value added service such as Netflix.
