Should telecoms entertain Netflix to boost ARPU

Netflix on Pay TV Benefits Operator Business, IHS SurveyNetflix has already started assisting several telecom network operators, which offer pay TV services, to grow their ARPU, a telecom research report from IHS says.

But there are two views on the significance of tapping Netflix to boost ARPU. Though a section of the telecom industry feels that Netflix will eventually kills telecoms ARPU, IHS argues that Netflix is a good ARPU booster.

First view is that the integration of Netflix into traditional pay TV services, such as Virgin Media and BT TV, has a net positive impact on these operators’ performance.

Second view is that these partnerships are not appropriate for all, since telecom operators are investing in their own movies. Entertainment content, such as Sky, typically remains wary of working with Netflix.

Third view is that mobile content is a rapidly growing business for telecoms. Research and Markets says that the size of the mobile content market will be more than $170 billion by 2019 – due to the adoption of smartphones and tablets. Key vendors in mobile content market are, Comcast, DIRECTV, Hulu and Netflix.

Pressure on telecoms

The IHS report noted that Netflix will put pressure on some of operators’ core services, including movie packages and video-on-demand (VoD) offerings. Netflix has partnerships with 25 pay TV providers. IHS says Netflix will expand the number of deals after the over-the-top (OTT) video giant’s expansion to 130 new markets.

“Many of the operators working with Netflix have seen customer satisfaction ratings improve under the partnerships, which have helped foster positive operational performances,” said Ted Hall, research director at IHS Technology.

Telecom operators typically receive a share of the ongoing subscription fees only for customers that sign up via that operator’s set-top box. This is insignificant, as most Netflix users either already have an account or sign up via a more user-friendly device, such as a PC/laptop or tablet.

IHS says Netflix is a both less lucrative and more dangerous content partner to work with than the other premium networks pay TV providers traditionally partner with, such as HBO.

“Collaborating with the video streaming service is necessary for many operators positioning their platforms as one stop shop for TV and video content,” Ted Hall said.

Netflix plays role as an upsell driver for some operators, whose customers can only access the app via their most advanced set-top boxes. This is the case for 10 of Netflix’s 25 operator partners, primarily those using TiVo as their technology partner, in addition to Orange, Bouygues and Elisa.

Growing Netflix usage could prompt pay TV customers either subscribing to or considering premium movie services to reconsider their need for these higher-cost packages. Europe, where HBO has achieved consistent subscriber growth in recent years, will be more resilient to this than the US.

According to IHS, Showtime, The Movie Channel, Flix and Encore experienced US subscriber declines in 2014. HBO was among those to achieve positive net additions – along with sister channel Cinemax and rival Starz –thanks to the launch of its direct-to-consumer streaming offering, HBO Now.

Despite tough market conditions, IHS forecasts subscriber and revenue growth for most of the major players in the years to come.

Can Netflix avoid telecoms?

Netflix posted $1.823 billion in revenue and $43 million in profit in Q4 2015.

Netflix said its content costs have increased from under $6 billion in 2012 to more than $10 billion in 2015. In the same period, Netflix annual revenue has increased from roughly $4.3 billion to around $6 billion.

Netflix added 5.59 million new subscribers in the fourth quarter: 1.56 million the US and 4.04 million more internationally. While, its subscriber growth in the US is slowing, its international growth is accelerating.

Netflix projected it will sign up more than 6 million new subscribers in Q1 2016 indicating that telecoms will continue to play an important role in its entertainment business.

Baburajan K
[email protected]