Not long after dismissing South Africa as a potential market for its movie-on-demand service, Netflix last week announced it would bring the service here within the next two years.
As vague as that timeframe may be, it set the cat among the video pigeons in this country. Expectations for Netflix transforming the local movie-watching market are, however, misplaced.
The truth is, Netflix has already transformed the local market. And no, it’s not because thousands of South Africans have found ways to bypass regional restrictions. Nor even the fact that some service providers are offering unblocking services for regional content restrictions.
These services are based on providing a DNS-masking service, which means the user’s Internet address is masked, so that a registration request appears to come from the United States rather than South Africa, for example. A simple Google search reveals dozens of options for this technique.
The problem with such services – and the thousands of South Africans who have taken advantage of them – is that it remains the arena of the techie, the geek and the early adopter. The vast majority of the population will never come close to such workarounds, as evidenced by Eighty20’s latest figures for DStv satellite TV subscriptions: one third of South African households – more than 5-million homes – have DStv. The number keeps rising, with a 23% annual growth rate recorded for the past decade.
Another statistic to pour cold bandwidth over a belief in techie-circles that Netflix is hurting DStv: its holding company, MultiChoice, last year generated revenues of R27,5-billion, and a profit of R6,3-billion. In other words, one year’s profit could fund several serious competitors to Netflix.
Meanwhile, the long-touted prospect of Netflix coming to South Africa has spurred the emergence of a variety of new players in local video-on-demand. Vidi from media group Times Media Limited and FrontRow from mobile network operator MTN both rely on broadband, while Node from technology conglomerate Altech uses a combination of satellite for downloading movies and any Internet connection for uploading requests, registrations and settings.
Apple TV is also in the mix with a local version of its movie store. Other small players peck away at the market from the edges, the equivalent of online mom-and-pop video stores.
None of these provides a comprehensive new-release service to those who are abandoning physical video stores, and even their back catalogues are disappointing for the serious movie buff.
Nevertheless, when Netflix announced in a letter to shareholders on Wednesday that it’s able to accelerate the roll-out of its international expansion plans, it was really a euphemism for saying it has to expand quickly into markets where growing numbers of competitors are staking claims to the video-on-demand territory.
That forces them to be less squeamish about conditions on the ground. Like the local newcomers, they’ve realised that, if they wait for perfect broadband, the competitive environment will become far more of a challenge than slow connections.
It is also likely they figured out that thousands of South Africans are already using their service by pretending to be elsewhere in the world.
Finally, they would have picked up on the fact that fibre-to-the-home (FTTH) services are sprouting throughout South Africa, and these are ideal for Netflix. Some of the FTTH providers may well have contacted Netflix to request that it become part of the content services offered to customers, to take full advantage of fibre speeds and justify their capacity.
Netflix will have little impact on DStv in the short term. It may slow down its growth, but there is one area where no video-on-demand service can compete, and that is live sports. This is the mainstay of DStv’s market dominance throughout Africa, and Netflix is unlikely to challenge that dominance.
Netflix will comply with regional licensing requirements, as it does in all territories. For this very reason it has tried to prevent users in non-Netflix countries like South Africa from using the service. For the same reason, sadly, its offering is unlikely to be dramatically better or different from the video-on-demand competition locally.
In short, much of the potential impact that Netflix could make on the local market has already been made.