The Netflix effect: a rising tide floats all boats

As Netflix continues its global expansion, so too do the debates whether its service accelerates cord-cutting from traditional pay-TV services. But are we looking at this from the wrong perspective? Is the rising OTT tide, in fact, floating all boats including the pay-TV operator’s?

Growing steadily
In a recent report, Digital TV Research forecasted that North American OTT revenues will reach USD 20.39bn in 2020, up from USD 6.85bn last year. And I believe this growth trend is true globally. Is there a link between this growth trend and Netflix steadily increasing its presence around the world?

Its European expansion started in 2012 with UK, Ireland and Nordics, followed by The Netherlands in 2013 and in 2014 to Benelux, Germany and Switzerland. Australia and New Zealand are the latest countries in 2015, with Japan to follow quickly behind.

Exciting the consumers
A Netflix launch not only excites the consumers in that country but also causes increased marketing activities from the local pay-TV operators and OTT providers. We have seen this in the UK with Sky and Virgin Media offering more attractive OTT packages at a lower price as well as ViaPlay in Sweden and FoxTel in Australia. The sole aim is to fend off Netflix and entice consumers to stay with them.

Catalyst for adoption
With all of this marketing momentum, the result is that consumers start to better understand the benefit of streaming video and OTT services. And it is not just Netflix that reap the reward.

Looking at one Western European market, we see in the License Growth graph below that even non Netflix service providers see a surge in usage both before and after the Netflix launch.


Benefiting everyone
Another side effect of Netflix entering a market is that in many ways some local pay-TV operators have to raise their game. Not just in the marketing activities. But also in terms of the quality of the OTT service which they offer. We see many operators wanting to improve the user experience, extend their reach to more devices by supporting multiple DRMs and offer enhanced search facilities. All in order to compete better with the Netflix brand.

And let’s face it, although Netflix does have a number of international renowned series such as House of Cards and Orange is the New Black, they lack an in-depth catalog of offerings compared to pay-TV operators. Pay-TV operators are very well placed to provide quality content at a reasonable price anytime, anywhere to their consumers.

This begs the question, is Netflix – the poster child for OTT services – really an accelerator of OTT adoption rather than cord-cutting?

Netflix don’t see themselves as a threat to pay-TV operators. They view themselves to be complementary not a replacement. Is it about time that the industry starts believing them?