Netflix has partnerships with 25 pay television operators, with more likely to follow its global expansion. Integrating Netflix into traditional pay television services has apparently had a positive effect on the performance of these operators. That is the conclusion of a report from IHS. Yet is it really a good idea for operators to partner with Netflix?
The report, Netflix on Pay TV: A Marriage of Convenience, concludes that integrating Netflix has had a positive effect on the performance of operators like Virgin Media and BT TV.
Operators like Sky, with significant investments in their own movies and entertainment offer, typically remain wary of working with Netflix. In the longer term, there is a risk that Netflix will put pressure on the premium movie packages and video on demand offerings of operators.
“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.
“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,” he said. “But collaborating with the ever-popular streaming service is necessary for many operators positioning their platforms as one-stop-shop ecosystems for TV and video content.”
“Netflix plays at least some — likely small — role as an upsell driver for some operators, whose customers can only access the app via their most advanced set-top boxes,” he said. “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.”
Yet operators typically only receive a share of the ongoing subscription fees for customers that sign up via the operators set-top box. Many subscribers may already have an account or may sign up through a computer or tablet.
The results from the IHS survey suggest that the addition of third-party subscription services complement traditional channels and video on demand offerings. However, some operators are wary that as Netflix becomes more popular it could hit core pay-television services and in turn average revenues per user.
Of the eight operators that IHS highlighted, three appear to have had flat average revenue per user since partnering with Netflix, one appears to have reduced revenue, and four have seen small gains.
The greatest gain was at DISH Network, where average monthly revenue has risen from $84.39 in September 2014, before partnering with Netflix, to $86.33 a year later, although that could be due to many factors. DISH Network also lost 132,000 subscribers over the period.
Based on results, the case for partnering with Netflix is far from proven, according to data from the informitv Multiscreen Index.
Virgin Media has seen average revenue per user rise from £48.00 a month in September 2013, when it started working with Netflix, to £49.77 in September 2015. However, subscriber numbers fell by 27,000 over that period.
BT, which began working with Netflix in October 2014, has gained 352,000 video customers. That probably has more to do with the billions it is investing in exclusive sports coverage than the attraction of Netflix.
TalkTalk started offering Netflix in in January 2015 and had gained 107,000 video customers by September, with revenues up 4.5%, but the company has not talked of Netflix as contributing to that effort. The company prefers to promote its own offering, based on its bargain bucket buyout of Blinkbox. TalkTalk would not provide video customer numbers for the end of 2015, but chief executive Dido harding appeared to concede to analysts that they may have lost 20-30,000 in the last quarter.
Sky has had nothing to do with Netflix. It has seen its customer numbers rise by 1.54 million since the end of 2012. Although Sky no longer breaks out its customer numbers, much of that gain may have come from its own NOW TV proposition. Average revenue per user remains around £46 a month.
The real winner seems to be Netflix, which saw its international subscriber base increase by 17.71 million in the to years to the end of 2015. Clearly that is not simply attributable to its partnerships with pay-television operators.
For those operators without a significant investment in programming, who are really more interested in differentiating their broadband offer, Netflix may look like a positive partner. Those that have more to lose may be better off promoting their own premium programming than helping Netflix on its way.
Netflix on Pay TV: A Marriage of Convenience is available from IHS. The Multiscreen Index is available from informitv.