With US streaming site Netflix poised to enter the Australian market next year Andrianes Pinantoan from Pocketbook crunched some numbers to see try and ascertain what the local pay-TV market already looks like now.

Netflix is set to enter the Australian market, but that doesn’t stop a few enterprising Australians from accessing it now. Actually, it’s more than a few.

The article we linked to said up to 200,000 Australians signed up with the service. There are also many anecdotes about the popularity of Netflix in Australia in the forums and social media. So we decided to look deeper into the subject based on an anonymised study of 21,000 people who use Pocketbook to manage their finances.

Let’s start with the basics: stat 1 – market share.

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Our study found Netflix to be the second most popular paid-content media company in Australia, despite the fact that they are not officially available here and that they are actively geo-blocking Australians. Here’s a breakdown of the market (click on the image to get a bigger picture):

That’s right. Netflix owns 27% of the Australians currently using media subscription or rental services. And as you can see, they’ve tripled in size from just 9.88% in January 2013.

But the growth didn’t come at the expense of the local dominant player: Foxtel. The growth came from the old-world end of the market: rentals and to a lesser extent, local clone – Quickflix.

I should note here that the graph is based on the number of users (popularity) as opposed to dollars spent (revenue). And that means it doesn’t take into account metrics such as:

The number of transactions per customer. For example, if a person frequents Blockbuster twice a month for a year – we’ll count them only once. How long Netflix, Foxtel and Quickflix customers are subscribed for. See below for explanation. The fees they charge. Netflix might be growing in popularity in Australia but they charge around $10 a month. Foxtel, on the other hand, can charge more than $100.

So it’s true that Netflix is growing in popularity in Australia, but only among people who perhaps can’t afford (or simply refuse) to pay Foxtel’s fees. For those who are comfortable with paying those fees? They are happy to keep paying for the convenience Foxtel offers (in that they don’t have to go through a VPN service to combat Netflix’s current geo-blocking of our great country).

Another interesting thing to point out are the tiny grey bars at the top. That’s a lesser known alternative to Netflix: Amazon Prime. From what we can tell, it only started to gather momentum in Australia from September 2013, but as you can see, it has also grown – again, despite actively blocking Australians.

And although by number of users Amazon Prime is small in Australia, they charge an annual fee as opposed to a monthly fee. So by dollar amount, it’s actually quite significant. Again, the annual charge is a fraction of Foxtel – around $100 for the year.

How long did the subscribers stay?

The next stat of importance is how long subscribers stay with a particular service? This is a good indicator of how satisfied they are with the particular service.

But there’s a catch with calculating average subscription length.

If Service ABC has been around for 10 years and Service XYZ has been around for one year. Let’s say users of ABC stayed for an average of half the time and users of XYZ stayed for the whole time. ABC in this case would still appear to be doing better than XYZ because ABC would have an average subscription length of five years. Where XYZ would only be one year.

To do the right comparison, we need to do what is called a cohort analysis. That is, of users who start a service (sign up) in a particular month, how long did they stay for?

In the example above, we would look at only people who subscribed to ABC and XYZ with the same time period – to compare the two “cohort”. So what we might see is that ABC only has an average subscription length of six months and XYZ, one year.

So we did that analysis for Foxtel, Netflix and Quickflix. Here’s the data (our last date in the sample is 31 June 2014):

As you can see, Netflix users stay around the longest and Quickflix the shortest. Australians who signed up to Netflix in January 2014 stayed, on average, for 110 days (roughly 3 months, 20 days). Those who signed up to Foxtel during the same period stayed for slightly less than 80 days (2 months 20 days).

Another point is that given the effort it takes to set up Netflix in Australia, namely the research and setting up of a VPN service, there is more incentive to keep subscribing given the sunk cost.

Quickflix appears way down the list as unlike Foxtel and Netflix, they also offer once-off purchases of premium programmes. And it appears a lot of people bought these once, and never went back.

Market Share vs Growth

This is such an important note, I have to point it out to avoid any confusion. It is absolutely possible for a company to grow, yet have a shrinking market share.

That happens when the overall market is growing. The company is enjoying that growth, but at a slower pace than its competitors. So the fact that you’re seeing Quickflix’s market share decrease in this dataset doesn’t mean the company is in trouble. In fact, it might be subscribing more users than ever.

And the fact that Foxtel has a steady market share doesn’t mean they are not growing in profitability. In fact, what this graphs shows is that the company has consistently grabbed 50% of overall market.

It just so happens that Netflix is getting more of the growing pie than they do, remarkably without any Australian marketing or formal Australian servicing channel.

It will be interesting to see how this develops. Who do you think will come to dominate the industry?

*This study didn’t include iTunes, Google Play, Spotify, Pandora and Xbox purchases. Our sample size is 21,000+ Australians consumers only from the Pocketbook Consumer Spending Series Reports. Foxtel has a lot of business subscribers – company kitchens, meeting rooms and bars – they would be excluded from the sample.

Andrianes Pinantoan is head of growth for Pocketbook.

See the original article here.