High piracy rates in Singapore may hamper Netflix's market entry

Pricing will likely be adjusted and new payment modes made available

INTERNET streaming video provider Netflix faces a number of hurdles as it prepares to launch its subscription service in Asia Pacific in early 2016 and chief among them is piracy, according to Aisling O’Dwyer from digital media law firm Olswang Asia.

Last week (Sept 9), Netflix made public its plans to launch in Singapore, Hong Kong, Taiwan and South Korea early next year, giving a boost to the Internet streaming video market in a region dominated by local network television, cable TV subscriptions and illegal downloads.

In a statement, the company said it will open an office in Singapore and make it a hub for its expanding operations in Asia.

Netflix’s chief executive officer Reed Hastings said, "As the central hub in South-East Asia, Singapore is a sophisticated and diverse place that will find much to love about the Netflix service."

"The combination of increasing internet speeds and availability of smart phones and TVs will provide consumers with the anytime, anywhere ability to enjoy their favourite movies and TV shows on Netflix," he added.

In an e-mail interview with O’Dwyer, Digital News Asia (DNA) started by asking what were the prospects of success for Netflix in this region, and Singapore in particular.

Here is the interview transcript in full.



DNA: What is the potential for Netflix to succeed in Singapore and rest of Asia Pacific, considering 'alternative' ways of getting such content?



O’Dwyer: Netflix’s biggest competitor in Singapore and the rest of Asia Pacific will be piracy. Piracy in Asia is high by any global standard – and Singapore itself has amongst the highest rates of piracy in the world.

Pirates typically justify their activities by saying that they would pay for content if it was legally available. We are now at a point when there is a broad range of legal alternatives to pirate services – Netflix is just one part of that – and it will be interesting to see whether pirates will indeed pull the plug on their illegal download and streaming habits.



DNA: Will Netflix have to adjust their pricing for this region?



O’Dwyer: Netflix will need to localise every aspect of its service, including pricing. Netflix has recognised this already, launching its service in Japan with monthly subscriptions starting at 650 yen (approximately S$7.70), a lower price-point than in the United States, where a basic subscription is US$8.99 per month (S$12.80).

However, Asia is perhaps the most diverse region in the world from an economic development perspective – and that huge diversity means that Netflix will need to think carefully about prices in each individual country, and not just offer a one-size-fits-all price across Asia Pacific.



It's not only pricing that will be a challenge, it's payments. Netflix will need to employ innovative payment solutions if it wants to gain market share in countries such as Indonesia, where the credit card penetration rates are extremely low, which makes their subscription billing model a particular challenge.



DNA: What kind of content mix should the company be offering here, in terms of local vs. imported content?



O’Dwyer: Content is king for Netflix and its competitors. Netflix’s popular original content, such as House of Cards, is likely to be a major draw to the service, but the company will have to work closely with regulators across the region to ensure it can be made available to local audiences in compliance with content rules.

Whilst this international content is important, local content is equally if not more important. Producing popular local content may not be as straightforward as it seems, however. Audiences in Asia have very different demands from those in the United Kingdom or United States, and Netflix will face competition from local players, who have a head-start in the market.



DNA: Will this provide Netflix with local authority to clamp down on providers that help users access the US and UK services, or are their hands tied in this area?



O’Dwyer: Many in the industry would argue that Netflix already has all of the tools it needs to clamp down on users of Virtual Private Networks (VPNs). In April, Netflix updated its terms and conditions, allowing it to cancel the contracts of customers who are found to be watching content from other regions. Some might argue that an even simpler solution would be for Netflix to stop accepting payments from non-local credit cards.

Undoubtedly, Netflix’s local launch will provide a commercial inventive to prevent international access, as the company will want to demonstrate strong performance from its local services rather than just growth in US subscription numbers. Blocking access to Netflix’s international sites could encourage users to switch to the local service, boosting local viewing figures.

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