Netflix could shake up the Australian video streaming market if it ever chooses to enter, analysts told Computerworld Australia.
Netflix, which reported 36 million video streaming customers globally in the first quarter of 2013, has not announced any plans to enter Australia. However, the company has said it continues to explore a number of international markets.
View our interactive NBN map
The rumour of Netflix's entry into Australia is "well-founded" as the country "makes sense for Netflix's expansion," IBRS analyst Guy Cranswick told Computerworld Australia. He added that there are no apparent barriers stopping the company from entering the market.
Telsyte analyst Foad Fadaghi said it's "likely more over-the-top video providers [will] target Australia, especially as we start to see the arrival and adoption of NBN services."
"Australia is a great target because of our high prices for subscription TV, high dollar and relevantly strong consumer economy," he said. "This is however offset currently by a varied broadband experience in different areas and the high rates of content piracy."
In a letter to investors dated 23 January, Netflix wrote: "For the first half of 2013, we aren't planning to launch additional international markets. We are evaluating several expansion markets for late 2013 or 2014, but have not made any decisions yet."
On its investor relations page, Netflix explains that it evaluates international markets based on broadband infrastructure, including speeds, number of households and projected growth; content availability and cost; entertainment consumption and consumer interest; the competitive landscape; and e-commerce maturity.
Australians are interested in Netflix content, if a recent a Torrentfreak study is any indication. According to the study, 15 per cent of people who pirated the new season of Arrested Development were located in Australia, second behind only the US (18 per cent).
Demand for Arrested Development even prompted Australian consumer advocate Choice to send an open letter to Netflix requesting a legal way to watch. It hasn't received a response.
"Currently Australians are prohibited from accessing the Netflix website," Choice wrote in the 8 April letter. "This is frustrating for a number of consumers, however more so for consumers who may be fans of your original series, to which you have exclusive broadcasting rights."
On the other hand, recent Telsyte research showed declining consumer interest in subscription TV over broadband, largely due to the strength of free-to-air TV, said Fadaghi.
"However this could get re-ignited with the arrival of more competition," he said.
Netflix vs Quickflix and Foxtel
Cranswick said Netflix could use a low price to undercut rivals in Australia. The company's streaming-only plan in America costs US$7.99. Compare that to the recently announced Foxtel Play plan for $25 monthly or $14.99 for the lowest-tier Quickflix plan including streaming and 1 disc by post per month. Both Australian plans charge extra to stream new-release movies.
"You'd expect that when they enter the market it will be with a very compelling offer which they may do as a loss leader in price terms to gain market share very quickly," he said. However, if content restrictions limit the amount of content on an Australian Netflix offering, the service may struggle to attract customers, he said.
One way Netflix could quickly establish relationships in Australia might be to acquire Quickflix, which offers nearly identical services, including DVD rentals by post and video streaming. Cranswick said such a move could be easier than starting from scratch and would have the additional benefit of taking out a competitor. Also, "given the current ease of accessing debt markets, it might be a better deal financially," he said.
Quickflix didn't respond to requests for comment, but the startup has not hidden its fear that Netflix could be a future competitor.
"We're trying to move as fast as we can because we're scared of these other big competitors and we're scared of people like [the US company] Netflix ... who might be coming to Australia," Quickflix chief innovation officer, Tim Parsons, said at last year's CeBIT Future of Payments conference.
"We want to make sure that when they turn up they realise we're in all the key devices in the premium positions--contractually agreed with those device manufacturers--and have all the different pieces in place like PCI compliance ... so they say, 'That's not really worth it.'"
Meanwhile, Australia's top cable provider Foxtel has been steadily rolling out IPTV services that--like Netflix--work on any device. Foxtel Play, a new $25 monthly subscription service available this month, lets customers stream TV shows and movies across the TV, game consoles, tablets, PCs and other devices with no lock-in contract.
Foxtel, which declined to comment for this article, has also signed a deal with Netflix to air and stream House of Cards, a drama series produced by Netflix for its own subscription service.
"If the incumbents stifle Netflix's ambitions here, [Netflix] may take another view," said Cranswick. "US media companies tend to expect high success rates early on with international markets and if that doesn't transpire they exit."
Netflix could ultimately find that its biggest competitor in Australia is itself, added Cranswick. Australians are currently using proxies and other methods to bypass geographic restrictions and view Netflix content. If the US offer still provides better content or price, a local Netflix offer may not be as attractive, he said.
Netflix didn't respond to a request for comment.
Follow Adam Bender on Twitter: @WatchAdam