Netflix: The tip of the iceberg

While the CRTC has recently released the findings from a series of studies and research projects aimed at gauging the impact of over-the-top (OTT) services in Canada, other new developments in the connected TV sector have only further raised industry uncertainty by revealing how huge the competition currently is around digital distribution services for televised content.

Netflix was one of the first real OTT services in Canada, and since its arrival in December 2010, it has drawn fire from several industry players. But while it may have spearheaded a new trend, Netflix isn’t alone. 

On more than one occasion in recent months, television broadcast groups have voiced concern over the newcomers now arriving in Canada’s broadcasting space, be they set-top boxes like Apple TV, Google TV, Boxee or services like Netflix.  Traditional players in the Canadian broadcasting ecosystem are on the defensive.

First, Netflix… Now, the others

You don’t have to watch what’s happening in TV trends for very long to realize that this attitude of extreme caution may well be justified. To get a better idea of the enormous competition now taking shape in this sector, just consider for a moment the numerous challenges Netflix is currently encountering in its own market.

Amazon, the uncontested giant of the Long Tail, introduced last February a video streaming service providing access to 9000 titles at no extra charge to basic subscribers. Although the Amazon Prime service is not available in Canada, it is nevertheless an important addition to the Amazon Instant Video library, which formerly offered its catalogue of 90,000 titles for purchase or rental.

Another thorn in the side of Netflix is the recent announcement by distribution giant Miramax of an agreement with Facebook to distribute a film catalogue via the social network. If you’re thinking of Canada, where 16 million people have Facebook accounts, it’s as if Miramax had just bought itself admission into the home theatres of several hundred thousand Canadian viewers.

Follow the money…

And Netflix’s troubles are far from over. Having signed up millions of subscribers on the basis of its highly attractive rates, the company just announced that as of September the monthly rate in the United States would go up a staggering 60%. The protests from customers instantaneous.*

The company’s overly attractive rates are also key to its current problems with Starz, which distributes Walt Disney and Sony. The current contract between the two companies is due to expire in February, and they have yet to reach an agreement. Starz has refused the $30 million offered by Netflix for its catalogue, arguing among other things that Canadian subscribers to Netflix satellite and cable networks were paying $15 per month, $7 more than the 25 million American “Netflixters.”

All against one

The current debate over OTT services may be diverting attention from the fact that traditional and emergent television broadcasters still have a common enemy – piracy. According to a recent Ipsos/Oxford Economics study, the illegal copying of movies alone costs the Canadian economy some $1.8 billion in 2009–2010 – the equivalent of 12,600 full-time jobs. And with the launch of the first “BitTorrent Certified” televisions, it looks like the practice of piracy is only going to get easier.

So if some TV broadcasters are lying awake at night, worrying about Netflix, they might be interested in looking at what’s giving Netflix sleepless nights of its own. Tomorrow’s competitors will have many faces. And they’re starting to come out of the woodwork…

* This article was first published on Sept 13, 2011 in French.  Since then, Netflix co-founder and CEO Reed Hastings has issued an apology to Netflix customers for the company’s mishandling of the price hike.  Browsing through the user comments makes for an interesting experience; companies clearly have to learn how to deal with such a direct relationship with their clientele.


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