Updated: Reactions to Netflix’s expanding Asian footprint

One month after Netflix had its debut in Japan, the company has announced its plans to launch in four additional Asian markets by 2016: Hong Kong, South Korea, Taiwan and Singapore, while unforeseen factors plague its China launch.

Netflix currently operates in 50 countries apart from the US and boasts a subscriber base of over 65 million. In a report by Zacks Equity Research, the company’s last quarter earnings saw revenues from international operations soar nearly 48 per cent year over year to US$454.7 million.

In the international streaming segment, the company recorded 23.25 million members, up 68.5 per cent year over year. It recorded 2.37 million net new members in the quarter, which more than doubled from the year-ago quarter, while paid members grew 68 per cent to 21.65 million.

In the current quarter, Netflix expects to add 2.4 million subscribers internationally. Over the long term, analysts expect international operations to contribute 80 per cent of the company's total revenue.

As Netflix expands its footprint, Campaign Asia-Pacific asked a few regional industry experts to share their thoughts on the future of 'TV'.

Kevin Huang, CEO, Pixels

Linear TV will fade faster than you imagine. An entire generation of consumers will never know what we know as TV. Time to get on board with video ads today. Non-digital clients or agencies protecting their own turf is likely to mean losing their next generation of customers. Our kids will never know what it feels like to rush home at 8:30 pm to watch the 'TV' show. They've always had their TV in their pockets.

Marketers’ perception now is that if content doesn’t come through a dumb pipe onto a 40-inch screen, it’s not TV, and everything you put in your pocket is digital. But the importance of digital can even be seen in the offerings that Chinese people burn for the dead; you see paper iPads and smartphones, not paper TVs.

The Netflix launch and the earlier LeTV securing BPL rights are shots of confidence for the Hong Kong digital market. Advertisers need to think about ‘what is TV’? All these launches will cause a habit change.

In fact, Ricky Wong’s HKTV was the original Netflix of Hong Kong, but his content model is a bit off, as they put out an online episode per week a la old TV times. They, and the wider industry, need to really think about the distinction between offline and online.

Online TV will just be TV, as the world of linear TV has died a long time ago. Now, you see five people in the digital dept dealing with 20 per cent of the media budget, while 200 in the traditional department deal with 80 per cent of the budget, but in the next three years this situation will swop around. Media budgets should switch to the other way. Content delivered over the internet will be mainstream. It’s no longer about small kids playing online and small agencies playing with small budgets.

Mark Chan, managing partner, CMRS Digital Solutions

We will head toward multi-screen consumption, as on-demand content services will further drive down linear programming’s audience stickiness. The video-content-distribution market will be more regulated, yet more quality content will be available, in a quality delivery mode.

More traffic on video content platforms may not necessarily create more ad inventory or more views, but we see that the pay-to-view business model is getting more popular than free-to-watch with compulsory ads. As long as audiences are willing to pay, the ad-insertion model should be revolutionised to cope with a paid subscription model.

Alex Lee, CEO, Leo Burnett Hong Kong

I hope Netflix gets its pricing and packages right. Advertisers are ready and will be willing to shift some of their marketing budget from linear to online TV provided the risks are low, through good pricing and ability to measure. For advertising agencies, it means we need to think more about engagement-type content rather than broadcasting-style content when developing TV/video formats.

KK Tsang, CEO, The Bees

I think it will take some time to really impact linear viewing, and advertising. Linear viewing is still dominating and will still dominate for some time. However, the whole TV ecosystem will definitely be impacted in the long run.

The most immediate threat is to pay-TV operators in both subscription and advertising when streaming video can be viewed anytime, anywhere and on any devices. The launch will also pose challenges to research companies in measuring linear and non-linear viewing. Traditional advertising will be losing its importance and content marketing will be growing. Branded/sponsored content will become more popular when audiences can easily skip advertising.

Jeffrey Seah, country chair, VivaKi, and CEO, Starcom Mediavest Group Southeast Asia

The implications are that Netflix will disrupt the multi-level marketing seen in the distribution of content, telecommunication companies will be concerned about the low wall and the VPN business will drop.

On the bright side, a more mainstream uptake of multi-screen, video-on-demand content on the platform is expected. This is a threat to viewership eyeballs for the current local/conventional video content broadcasters, but a big win for consumers.

Netflix’s CEO has made it very clear that no advertising will be featured on their platform globally in their subscriber-driven monetisation model. So the impact on TV/video advertising will be indirect, i.e. conventional broadcasters will face even greater pressure...to manage imminent ratings declines—a catalyst for them to shift toward adopting more tech into their sales infrastructure. A more sustainable revenue model may be underway in the next two to three years. What we speak of as programmatic crossing into traditional spaces is on its way.

Eddy Fu, MD, BBDO Taiwan

DVD stores are going to the dusk even sooner, but CATV and terrestrial TV will not be affected too much as Netflix is unlikely to provide local programs. Local programs are important in Taiwan.

Rudi Leung, partner, Turn Plus Communication

I believe Netflix will and should stay as an ad-free platform as it is in other markets. So it shouldn’t affect the online video-advertising market in the short run. Having said that, if Netflix gets really popular in Hong Kong, the real impact is that the platform will grow at the cost of the "screen time” from other video channels, such as TVB, Cable TV, Now TV or even YouTube. After all, we only have 24 hours a day. Ad dollars will continue shifting to various emerging online video ad networks with the announcement of the new iPhone 6s Plus and other big-screen mobile devices.

Kathy Li, deputy general manager, 3i, Starcom Taiwan

Obviously Netflix is welcomed by young people, particularly young early adaptors. When we used our Facebook social-listening tool to have a quick glance at people’s response to the news announced yesterday, we can find people’s feedback is very positive, but not a big amount.

Many articles mentioned that Netflix will bring huge impact to 'kill' traditional TV, especially cable TV, but my point of view is a little bit different. Most young people have already left traditional TV and switched to MOD (a direct-response TV platform owned by the biggest local telecom company) or online video platforms (tons of choices, mainly from China). For Netflix, their own netizen approach to content is definitely a great selling point among millennials. If they come into Taiwan with a strong marketing-communication strategy, I think Netflix will definitely bring impact.... Netflix may change the mix.

Alvin Lam, Asia Pacific group business director, PacificLink Group 

We forecasted a few years ago that traditional advertisers will shift their TV ad budget to digital-video channels as audiences are shifting to video-on-demand online. That was why we started to provide digital TVC production for our clients a few years ago. The rise of HKTV, vloggers’ channels and various OTT providers accelerated the shift and gradually disrupted linear TV.

Linear TV services should accelerate their digital transformation processes much more quickly to catch up with the trend. Otherwise, their profit outlooks will be getting more sluggish. Digitalisation is not difficult. However, digitalisation of complex business structures is painful. The management should have determination to strike big changes in their traditional businesses to become digital enterprises.

The development of online ads will become more complicated as online videos appear in different formats on different types of devices with different viewing and clicking behaviour from users. Advertising performance analytic tools should be more sophisticated to help advertisers/media buyers increase ROI on different ad placements. We forecast video adspend to be in double-digit growth in the coming years.

Charles Chen, strategic resources director, Dentsu Aegis Network Taiwan

In Taiwan, Netflix's data pipeline may take multiple forms, including through existing platforms such as telecommunications providers or multiple-system operators of OTT services. It has yet to be confirmed. Next year, there will be more OTT video services in the Taiwanese market so consumers will have a lot of options. This is expected to accelerate the transformation of people's viewing behaviour.

The pay-TV subscription market will see limited overall impact if Netflix movies or dramas are limited to European or American content. This market depends on the accessibility of free content, especially since there is a variety of controversial copyright-free content from China, so consumer willingness to pay is low. Even though willingness to pay is higher in the Taiwan market, as long as we can still get a lot of free video content, the expected impact from Netflix will be limited.