Content is King: Why Netflix Will Kill Australian Network TV

Seven Group Holdings

Australia’s free to air and pay TV network broadcasters are preaching unity in a bid to fend off the rise of foreign video on demand services. The introduction of services like Netflix to Aussie shores this year was a major shakeup in Australia’s broadcasting landscape.

Try as they might to prevent the rise of Netflix, Aussie broadcasters have a huge task on their hands. And no amount of collective collaboration is likely to change that.

What kind of collaboration are we talking about?

One example broadcasters are talking up is the use of the so called ‘universal search’. Basically, imagine you want to watch Game of Thrones. If you searched for it on ABC’s iView, you wouldn’t find any trace of it. That’s because Foxtel currently holds the Aussie rights to the popular HBO series.

Under the proposed approach, searching for Game on Thrones on ABC would direct you to Foxtel. Clive Dickens, chief digital officer at Seven, explains the benefits of this kind of collaboration for broadcasters:

We’re all seeing a significant amount of disruption [from technology players] and we have to innovate, disrupt or die. The best way to avoid dying is by collaborating as well as innovating. When everyone was glued in front of the lounge screen [consumers] had no choice but now consumers have choice and we need to respond.

‘Universal search is a low-hanging fruit and it’s already happening elsewhere in the world. If you go to the BBC iPlayer and search for Coronation Street, which is not a BBC program or available on the iPlayer, it tells you where it is.

‘When you search for [rival search engine] Bing or for Apple on Google it doesn’t say ‘no, it just doesn’t exist!’ but that’s the equivalent of what we do and it’s just immature and we’ve got to mature as an industry if we’re going to survive.’

He goes on to say:

Historically the Australian free to air industry has been focused on assassinating each other and I think that we need to remember the enemy is out there. I’m hopeful…that we can actually do work together to provide a great experience for consumers locally, recognising that if we don’t do something about it people at Facebook or Google [which owns YouTube] will continue to encroach into our sweet spot of long-form premium content.

The enemy for us isn’t so much Seven or Nine necessarily as much as it is Google or Amazon or any of those really big businesses that have really robust global balance sheets and are able to fund content development [and] are moving into the domain of what was effectively television.’

Network TV is already dead for many

If you’re like me, you probably don’t watch much TV over the box these days. At least not in the way that you used to even five years ago.

I consume quite a bit of Netflix. I have no regrets in paying the $12 a month for Netflix. There are stretches of time where I forget I even subscribe to it. But I’m happy to keep paying for it because it’s a fantastic service. It’s geared for consumers. The picture quality is better than what you’d find even on high definition broadcast TV. And there are no ads. Best of all, you get high quality, original programming.

Compared to say Foxtel, Netflix is something of a godsend. If it weren’t for popular sport rights, the threat Netflix poses to major networks would be much worse than it is.

Of course, the networks haven’t sat idle. They’re also getting in on the video on demand (VOD) craze. Stan is a venture co-owned by Nine and Fairfax. Foxtel owns 50% of Presto.

But compared to Netflix, these services don’t produce their own content. They’re dependent on content from overseas. That’s a dangerous business model to base a VOD service on. Especially as competitors can always outbid other services for these rights. For now, the likes of HBO sell their shows onto local networks. But how long is it before they go directly to consumers like Netflix has?

Original, quality programming is half the battle in winning over customers. The advantage the likes of Netflix or Google (who own YouTube) have is that their original content has universal appeal. Whether you’re American, Australia or Belgian, we all consume US shows. That’s partly down to tradition, but it’s also down to perceived quality. Not every Netflix show is a critical or commercial success. But our affinity for shows of that level of quality is a major reason why Netflix is so successful.

Australian broadcasters can’t compete on that level. There just isn’t the same level of resources. Netflix had revenues of almost $10 billion last year. Operating income was close to a billion. And Netflix can reinvest all this into more original content. Into the type of shows that, like House of Cards, drive the service to new heights.

NBN: a game changer?

The future of digital media in Australia depends on our capacity to improve our internet infrastructure.

That’s already well under away with the rollout of the National Broadband Network (NBN). In saying that, the rollout still has a ways to go. But as it nears completion, the potential for VOD will be taken to another level. Ultra-high definition (4K) shows will become readily available. Netflix already offers a selection of shows in 4K. Yet people either don’t have a 4K-capable TV, or their internet connection is too slow. In most cases it’s a combination of the two.

But this is another area where global digital giants have a leg up over Aussie broadcasters. It’s only last week that Nine started offering its main channel in HD. It’s about 10 years too late… It held off for so long because it didn’t think the country was ready for it. There were still too many people without an HD capable TV, they argued. It’s the kind of mindset that was rooted among traditional broadcasters.

Yet that way of thinking was outdated even a decade ago. It played an important role in driving people away from traditional TV. You could download a show in better quality than what you’d get on free to air TV. On top of which, you’d get no ads with it. And you could have it all done and dusted before it even airs in on network TV in Australia. Remember how long it took Aussie broadcasters to ‘fast track’ shows from the US? It’s no wonder younger generations moved away from traditional TV.

Binge watching Netflix

Another advantage foreign broadcasters have is their ability to show content in bulk. Why does that matter? Because network television still depend on the old model, based on seasons stretched out over months.

Netflix doesn’t have this problem. As a VOD service, it can provide viewers with an entire catalogue of content upfront. You’re able to watch what you want, when you want, and all at once. That’s a pretty good deal. And it’s something that traditional broadcasters can’t offer.

As with anything, content is king. The winners from this emerging trend will be those who create the best content. That’s what will drive consumers to subscribe, more than anything else.

The problem for Australian network broadcasters is that their audience is limited. They can’t compete with the kind of budgets Netflix, Google or Amazon have. It doesn’t mean that traditional networks will die. They’ll adapt or innovate. They’ll keeping pushing their own VOD services like Stan. But until they realise that internet based VOD doesn’t align with traditional TV, they’ll continue to fall behind.

Mat Spasic,

Contributor, The Daily Reckoning

PS: Shares in digital VOD services looks set to boom over the coming decade as the platform matures. Yet every investment, no matter how it looks, has an element of risk attached to it. As The Daily Reckoning’s Bernd Struben would say, more risk equals…more risk. That doesn’t just apply to digital broadcasters. Every company you invest in comes with its own potential pitfalls.

Bernd’s written a free report, ‘Three Essential Rules to Boost Your Profits and Lower Your Risks’. In it, he shows you the golden rules for creating wealth in the stock market.

In particular, Bernd is keen to share the one investing rule that could save you thousands of dollars. You’ve no doubt heard of it, even if most investors ignore it. You’ll learn how this single investing rule can boost your portfolio profits. To find out how to download his report, click here.


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