Linear television still has a role to play despite the Netflix effect

Linear television still has a role to play despite the Netflix effect 12 February 2016

Linear television still has a role to play despite the Netflix effect Peter Bruce, Director, IABM APAC

This article originally appeared in the March 2016 issue of Asia Pacific Broadcasting (Click here to visit their website)

Was January 6 at CES 2016 in Las Vegas the day that changed the broadcast and media world forever?

Since Reed Hastings, co-founder and CEO of Netflix, presented the keynote speech at CES 2016 with chief content officer Ted Sarandos, Netflix has left governments, regulators and, most of all, TV stations in a spin. Netflix has been discussed in parliaments; had calls for its banning; a rush of arguments regarding withholding tax; and TV stations and telcos wanting to block the Internet video-streaming service. Meanwhile, in some regions, cable operators are fighting to sign up and partner the subscription-video-ondemand (SVoD) media company.

The two executives from Netflix announced the launch of their services into another 130 countries. So what is all the commotion about? Well, it effectively turns Netflix into a global operation and without borders (with the exception of China, Syria and North Korea), and has started many discussions in many countries.

So, let's try to address some of the controversies here.

The business model If a conventional broadcaster were to try what Netflix is doing, it would take years to obtain the requisite licences in every territory. Additionally, as many contribution channels running in each region have found out, a whole industry has grown up locally to address the various censorship and regional sensitivities of the material broadly known as compliance'. In many cases, permission would not be granted, or it would take years for approval in each country to deliver content.

So similarly to Uber (the taxi booking company), Netflix has simply launched, and while it may face many individual legal challenges over the coming months and years, these are likely to be fought off one by one as they arise.

Meanwhile, consumers will be signing up in their millions, making it extremely challenging for governments to reverse the roll-out of Netflix in their territories. This disruptive business model uses connectivity in a digital world to enable phenomenal global growth, placing Netflix in a similar camp as Uber in terms of expansion. Already, TV stations are questioning why Netflix is operating under different rules compared to free to- air terrestrial or cable networks.

When Netflix announced its plan to open up to a further 130 countries globally, it took the world by surprise. Overnight, much like Uber, Netflix is now live in 242 countries, and the plan appears to be one of jump in and see what sticks .

By now, government ministers in Malaysia have called for a total ban of Netflix; Indonesia's film censorship board, LSF, has floated the idea of having Netflix blocked; while in Singapore, local telcos StarHub and Singtel have adopted the stance that if you cannot beat them, join them , offering Netflix-inclusive pay-TV packages to their subscribers.

It's all about the content! It's really all about the content and how we receive it! A recent survey (eMarketer) in the US asked why people subscribed to Netflix? . Some 82% of respondents replied that it was the convenience of streaming, on-demand programming. What the concerned national TV stations are missing is that if they do not move to new forms of distribution, then others will.

At present, Netflix only has 70-plus million viewers worldwide; this is not a huge number for a worldwide media organisation. Reed Hastings' comment that Netflix is not the 800-pound gorilla in the room when YouTube has more than one billion views per month may be valid, although this does highlight that viewing habits are changing and the world is turning into Internet binge viewers. This is an issue that linear TV stations must address.

During the Netflix announcement at CES 2016, there was a reason why its chief content officer, Ted Sarandos, was co-hosting the launch. Netflix knows that it is not only convenience that matters but, most importantly, content is still king. This is predicated in both the quality and choice of programming, as well as expanding the number of languages and of course, adding 4K/Ultra HD (UHD) programming, which is coming soon. Netflix is also investing heavily in high-quality, original programming with titles such as House of Cards, Lilyhammer, Hemlock Grove and Orange Is the New Black. All these elements differentiate Netflix from the traditional government run (or private, in many cases) TV channels to a greater or lesser extent.

However, while Netflix may circumvent local regulations, rights are a different and more challenging issue that it does need to address head-on. Indeed, Netflix is already dealing with regional rights issues; a cross-reference table of what is allowed in various territories highlights the problems of being a totally global video distributor.

As a result, depending on international rights, the content structure is different in each territory. Some Singapore viewers have already expressed disappointment that some programming is not available in their region. Netflix has announced that it will block proxy servers from viewers subscribing from the wrong region, effectively banning content hunting.

The death of linear television? Traditional TV stations are more than worried. With programming being produced outside of the region, and a short circuit between the content and viewers on their TV and mobile devices, the question is whether the local linear TV station still has relevance.

The truth of the matter is that Internet TV kicked off several years ago, with the initial debate being TV versus the Internet. The reality

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