Helen Roxburgh
Mar 14, 2018

The OTT video streaming battle in Asia

SECTOR STUDY: Global players are struggling to make inroads in the face of fierce competition from local services.

Netflix has backed Korean film Okja
Netflix has backed Korean film Okja

With 118 million subscribers globally, Netflix has quickly become a global force in content creation and video streaming. The fastest growth comes from its international services, which swelled 11% and added 6.4 million subscribers in the last quarter of 2017 alone.

But while Netflix currently dominates worldwide, it is still struggling to make inroads in Asia, as is US competitor Hulu. Both face competition from regional players that have already grabbed large parts of market share.

“The Asia-Pacific market is quite dynamic with both English and non-English speaking countries, very different cultures, and very large populations,” says Jessie Yu, research manager for digital transformation practice, APAC, at Frost & Sullivan. “We see that Netflix and Hulu are growing very aggressively in Asia in the last two to three years, but from the total number of subscribers and revenues, local players are stronger.”

These local players include Taiwan’s Catchplay, Malaysia’s Iflix, Singapore-based HOOQ and Hong Kong’s Viu, each of which has developed strategies that have attracted local viewers.

China landscape

In China, the regulatory landscape is just one reason international streaming services struggle, despite huge interest from consumers. Content has to be approved by state regulators, as well as meeting linguistic and cultural expectations. Consultancy eMarketer expects that 37% of digital video viewers in China will watch online content using a subscription over-the-top (OTT) video service this year, such as iQiyi, Youku Tudou
or Tencent Video, reaching almost 230 million subscriptions by year-end.

“Unlike players like Netflix, the Chinese players adopt a hybrid revenue model that generates revenue based on subscription, pay per view and free viewing but with advertising,” says Shelleen Shum, senior forecasting analyst at eMarketer. “We think that currently iQiyi leads with 72.1% share of total subscription OTT video service users, followed by Tencent Video and Youku. The gap between the players will narrow as they each compete for market share.

iQiyi dominates China’s OTT subscription figures with shows like The Rap of China

“Tencent will be able to leverage its social networks, WeChat and Qzone, to improve user stickiness; and Youku, now owned by Alibaba, has the financial power to invest in original content.”

Victor Lee, associate director at Omnicom Media Group, says: “Chinese video streamers are currently very focused on just China. They know the audience, and they are still trying to grow their market, trying to make more profit out of their audience by introducing more content and more paid customers through their networks.

“A lot of good content is created in the US, and in China they are still trying to bridge that gap when it comes to content creation.”

Cost crunch

With this advantage, Netflix has had success in specific APAC regions. In Australia, a localised Netflix service rapidly disrupted the country’s video-streaming market when it launched in 2015, prompting the quick sale or closure of two local rivals. According to Stable Research, 69% of Australians have now watched Netflix.

In Japan and in India, Netflix has tried to gain market share with more targeted, local content, and has met more success in Japan, where the streaming service now offers a bigger content library than Netflix US and has agreed licensing deals with two key Japanese studios to create original content. Hulu is currently only available in Japan outside the US, but recently lost the rights to stream HBO content to global competitor Amazon Prime Video.

"Japanese or Chinese players have models that create more customer stickiness than Netflix, more social elements."
Jessie Yu, Frost & Sullivan

In India, Netflix is also competing with Amazon Prime and popular local streaming service Hotstar, which has the digital rights to stream cricket and football games and HBO shows in the country, streaming landmark programmes like Game of Thrones on the same day as the US. As well
as this popular combination, Hotstar’s basic tier is free.

“What we can say with certainty is that bigger budgets tend to mean better service and technology,” says Oscar Orozco, senior forecasting analyst at eMarketer. “A major barrier for Netflix at the moment is the
cost of a subscription. Consumers in APAC are still not accustomed to paying for streaming videos and it might take time for this to catch on. For many mobile-only video viewers, using data to watch a video in and of itself is considered an expense.”

Orozco says demand for low-cost is partly why YouTube is so popular across Asia, with close to half of digital video viewers across the continent — around 575 million people — expected to be regularly watching video via YouTube by the
end of the year, an increase of 13% annually.

Mixing international and local entertainment while keeping costs low is a key strength that many local players offer, as is hosting multiple languages and a deep knowledge of local markets.

Netflix fights back

“Language is one thing, another is the interaction with subscribers,” says Yu. “Japanese or Chinese players have models that create more customer stickiness than Netflix, more social elements.”

Netflix is starting a fightback in Asia. Last year, chief content officer Ted Sarandos said the company would invest more time and energy here after admitting Asia remained a challenge. The group signed a deal last April to acquire 600 hours of TV shows from South Korea’s JTBC. 

Netflix also signed an agreement on its first original and multilingual series in India, Sacred Games, with Red Chillies Entertainment. In addition, last year it agreed a deal with iQiyi, providing copyrighted Netflix content to mainland Chinese users for the first time.

But even as Netflix extends its reach, local streaming services are beginning to extend theirs too. This includes ViKi, originally based in Singapore, which was bought by Japan’s Rakuten Ventures and now operates across the continent, and HOOQ, which streams services to the Philippines, Thailand, Indonesia, Singapore and India. Malaysian-based iFlix has even broader horizons; it has now expanded into emerging markets including Nigeria, Kenya, Kuwait, Pakistan and Sri Lanka.

But when they move into new markets, Asian streaming services will face the same trials as their US challengers in Asia – offering targeted international and localised content to a market
of new consumers.

“For new subscribers, content and localisation are most important,” concludes Yu. “Platforms that don’t create their own content are going to struggle to compete.”

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