There have been a lot of fluttering hands over the past two quarters concerning Netflix’s international growth potential. But the streamer’s deal this week with Liberty Global to put Netflix on the pay-TV operator’s next-gen Horizon set-top boxes in more than 30 countries may soothe most of that nervousness.
It also sets Liberty Global up as the biggest proof case that a hybrid of pay TV and SVOD content is the future for the industry.
The rollout already is underway in the Netherlands and is expected to be completed by the end of 2017 at Liberty Global properties in Europe, the Caribbean and Latin America.
Letting the fox into the hen house?
The multi-year deal from Liberty’s point of view is brilliant on multiple levels because while pay-TV operators globally haven’t seen the same cord-cutting trends that U.S. operators have, the eventuality of subscribers turning away from traditional pay TV elsewhere is inevitable for a couple of reasons:
- Millennials globally have adopted a more mobile-centric lifestyle (Liberty has 11 million mobile subscribers), one that relies far less on traditional pay-TV. And,
- Subscribers to pay-TV globally eventually will have the same questions about its value prop as have (ex-) subscribers in North America.
Liberty’s move postpones the inevitable subscriber loses by making its own service stickier. It also adds to the value of the Horizon box for consumers who now won’t have to buy an Apple TV, Roku or other device to get content. And, finally, the operator will get a cut – how much wasn’t announced – of monthly fees from Netflix for subscriber who sign up through STBs. Fees from current Netflix subscribers aren’t part of the deal, even though they’ll have access through the boxes.
The deal is equally favorable for Netflix, as it opens up a market of 29 million current Liberty Global cable subscribers, a substantial marketing pop as it will piggyback on Liberty Global’s significant marketing infrastructure.
The deal, obviously, isn’t the only one Netflix has with operators. In addition to the existing Virgin Media deal it also has partnerships with several other European operators and has aggressively sought to partner with APAC service providers, too. In the U.S. and Canada, it already has a number of agreements including a recently signed deal with Comcast to put the Netflix app on its Xfinity box.
But the Liberty Global deal is far more important than any deal in the U.S., where penetration among pay-TV subscribers already is high.
The fact that Liberty Global has been able to observe how a Netflix offering impacts its pay-TV business for the past three years – it’ been available to United Kingdom subscribers to Liberty’s Virgin Media subsidiary since 2013 – is an even stronger recommendation. If it wasn’t working, Netflix wouldn’t be expanding across Liberty’s footprint.
As Liberty Global CEO Mike Fries said, Virgin Media subscribers given access to Netflix through its STB “pay more, churn less and are happier.”
Consumers, OTT players win (and there’s room for operators, too)
Aside from Liberty and Netflix, there are other winners in this deal, too.
Consumers, obviously, benefit because they have easy access to a service that consistently has proven to be a viewer favorite.
Not only will they have access to Netflix content, they’ll also have the (truly joyful) opportunity to use a single remote control to access pay-TV and Netflix, improving their user experience as well. That, and improved user interfaces, continue to be at the core of OTT growth and a major focus of the industry.
And, while Netflix is the highest profile SVOD service to have become a pay-TV darling, or at least an occasional friend, it’s certain that it won’t be the only one.
As operators continue to see their subscriber logs and pay-TV margins shrink (as content costs continue to rise), they will increasingly turn to broadband to fuel growth and maintain a pipe into consumers’ homes.
That means more opportunities for OTT services with the grudging support of operators.
My, how things have changed.