The Proliferation of Digital (VOD/SVOD/etc.) and the Further Fracturing of Markets

Filmdependent post on June 5th, 2014
Posted in Uncategorized

As Viewed Through Netflix In Brazil

It has been true over the last forty years that as a new movie-viewing platform arrives, chances for consumers to hone their tastes, and to fine-tune their choices has expanded film viewing and expanded film income. At the same time, consumers have become less at the mercy of television networks and theater owners as to what is available, they have consumed mainstream content through the big delivery systems, and lots of different content as well through these more dispersed systems. Digital delivery mechanisms are making that choosiness and fine-tuning of consumption only more so.

In preparing a new section in our State of the Film Markets Report, focusing on the roll-out of these services in spots around the globe, one focus, NetFlix in Brazil, highlighted very plainly how there are many issues in this deployment, and how it will likely not be a hegemonic world, with only a few suppliers in control of all digital content.

Announced at the beginning of the fall, Netflix is expanding into 43 countries throughout Latin America and the Caribbean. The service launched in Brazil in early September. Netflix’s struggles in its first Latin American market cast light on the challenges Netflix will face as it attempts to export its model. Widespread piracy in Brazil, one of the most vibrant piracy markets in the world, and low NetFlix brand recognition are obvious challenges that come to mind. But, in Brazil, Netflix faces stiff competition from local competitors, including NetMovies, Terra TV Video Store, Saraiva Digital, and Muu. Paid TV services, as in the US, are also offering on-demand packages.

Content Deals Are Territory By Territory
Within a month of Netflix’s Brazilian debut, Netmovies announced a streaming deal with Disney. BTIG Research analyst Richard Greenfield notes that the Netflix streaming service seems to have “some, if not all of the titles NetMovies will be offering from Disney. It remains unclear how well-financed NetMovies is and thus what its ability will be to add more content.” Nevertheless, Netmovies’ ability to negotiate an agreement with Disney hints that Netflix may not be able to offer consistent or exclusive streaming content between countries. In other words, no content deals are worldwide, and may not be “region-wide.”

Inconsistent Broadband Penetration Levels
Low penetration of broadband and slower connection speeds in Brazil are an additional obstacle: local newspapers report that Netflix stalls even on broadband connections. According to a May report from Ibope Nielsen Online, only 20% of Brazil’s 42 million Internet users have a connection speed above 500kbs – streaming requires a minimum of about 800kbs.

Local Content Tastes A Barrier
Meanwhile, excitement about Netflix’s initial entry into Brazil has dimmed in the light of consumer gripes. The Netflix catalogue has been a major source of dissatisfaction – according to Netflix VP of Global Corporate Communications Jonathan Friedland, Netflix is working to expand its catalogue. Since its launch, the service has increased its offerings by 50%, and should double by the end of the year.
Securing local content has also been a challenge for Netflix: a month after the service launched, Brazilian newspaper Folha reported that only 7 out of the 10,000 titles available on the service were Brazilian films as NetFlix faced resistance from local producers and TV channels. Recent communications from NetFlix have emphasized acquisitions of local content, such as “The Art of Insult” starring Brazilian comedian Rafinha Bastos.

Technical Glitches Can Mar A Debut
Audio quality also received criticism, especially among users who prefer subtitles to dubbing. According to Gizmodo Brasil, the original audio version isn’t always available. According to Friedland, Netflix is also working on licensing subtitled content; its TV programs for kids, for instance, will include original audio tracks by the end of January, he said. Netflix has held focus groups to provide the company with representative samples, and states that the majority of its customers prefer dubbing. Could licensing subtitled content be a challenge for Netflix in other markets? Despite Netflix’s insistence that most viewers prefer dubbing, the ability to manipulate subtitles was a major source of discussion in Brazilian newspaper Folha’s comparison of Netflix and other VOD services available in Brazil.

Proliferation Of Platforms And Lots Of Extra Work
Netflix’s Android app is now available in Latin America and the company is working on offering its service on iPad, iPhone, iPod and XBox 360 in the region. According to Gizmodo, Netflix’s iOS app has already been submitted to Apple and is now awaiting approval.

Besides mobile devices, Netflix is also looking at connected TVs and recently closed a deal to offer its service on LG Smart TVs in Brazil. Brazilian coverage indicates that short-form content is most popular with connected TV users [FilmProfit’s emphasis]. Sony and Samsung are also key players in the SmarTV market – it remains to be seen how Netflix will fare in the connected TV sector.

Other Operators With Local Content Tastes In Their DNA
NetMovies, for one, provides a significant challenge to Netflix’s streaming-only model. Launched in 2004 as a by-mail DVD and Blu-ray subscription service, Netmovies’ catalog includes some 35,000 titles, including an unknown number of available streaming titles (including its recent high-profile Disney title additions). Anticipating Netflix’s launch, the service expanded its disc availability to all 20 Brazilian states, nearly doubling the territories it served in 2010. Netmovies’ streaming-only service is available for R$9.99, compared with R$14.99 for Netflix. Netmovies offers customers access to its streaming service and its home delivery options for the same R$14.99 cost.

VOD Has Been A Movement Among Cable And Other Operators
As a matter of fact, broadband delivery is not a new concept only to NetFlix, though they have “relatively” solved it here in the States, and moved to Canada. But in a place where news on this used to be a few stories from around the globe in a day, there are now stories in the hundreds per week, with new deployment systems, Sony starting a virtual cable play over the Internet, and so on. Local cable operators can almost buy off the shelf systems and even content packages to deliver to their customers, to stopgap plays like NetFlix and the like.

Some Thoughts, Just About The Netflixes And Amazons:
As an analyst and business planner, I see many clues in Netflix’s Brazil launch that lay out a roadmap for planning the deployment of digital movie and TV content delivery by a NetFlix, or an Amazon, a really fast-moving NetFlix competitor.

• What are content tastes?
• Is the old “last mile” or “last ten feet” of broadband delivery question answered?
• What is alternative device penetration, and network-handling?
• How do we deploy efficiently to a multitude of platforms?
• How do we compete with local systems already in place?

But those questions also point to complexities distributors face as they try to discern where to efficiently peddle a producer’s film(s) to best economic effect, as they go market to market.

The Complex Complexity Of The Complexness Of It All
And then we have, in my case, the daunting task of trying to discern the value for an individual film in Projections Models what the nature of the value is. I had read a blogpost here some months ago, pegging it at some 10 to 15%. I was nowhere near that in my analysis, in fact, closer to half that or less. But we are entering a world where that could become a reality in two years or more. But, these are not omnibus deals. A distributor, particularly for indie product, needs to have in place a series of deals, NetFlix, cable VOD operators, iTunes, Vudu, hotel delivery operators, and so on, and the differentiated deals with each. Of course, you can blend these (and I have to) but this opens the door to seeing the complexity of the equation. We will not have dust settling on this for some time still, but the future is clear to be highly digital.
Some Of Our Sources For This Post:
Netflix não consegue adquirir filmes nacionais – Folha http://f5.folha.uol.com.br/televisao/996537-netflix-nao-consegue-adquirir-filmes-nacionais.shtml

Filmes do Netflix em HD engasgam na banda larga brasileira – Folha http://www1.folha.uol.com.br/tec/975222-filmes-do-netflix-em-hd-engasgam-na-banda-larga-brasileira.shtml

Netflix Unveils Latin America Service in Brazil – Huffington Post http://www.huffingtonpost.com/2011/09/05/netflix-unveils-latin-ame_0_n_949763.html

Um Insulto que os Brasileiros Vão Adora http://brasilblog.netflix.com/2011/09/um-insulto-que-os-brasileiros-vao.html

Aplicativos de VOD são os mais procurados para TVs conectadas – Rapid TV news http://www.rapidtvnews.com/index.php/rtvn-portugues/noticias/aplicativos-de-vod-sao-os-mais-procurados-para-tvs-conectadas.html#ixzz1e0bXPTHD

And Now I Have Disney Too Netflix Told By Brazilian Rival – Rapid TV News http://www.rapidtvnews.com/index.php/2011093015670/and-now-i-have-disney-too-netflix-told-by-brazilian-rival.html

Disney Signs Streaming Deal With Netflix Competitor – Home Media Magazine http://www.homemediamagazine.com/streaming/disney-signs-brazilian-streaming-deal-with-netflix-competitor-25189

Netflix Executive Addresses Complaints And Promises Quick Fixes – Gizmodo.br http://www.gizmodo.com.br/conteudo/executivo-do-netflix-explica-os-problemas-e-promete-solucoes-rapidas/

Onward and Upward!

Jeff

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