Leading American OTT video provider Netflix has made its first foray into the European market, but operators are unlikely to be forced into sudden changes of strategy.
Netflix formally launched in the UK and Ireland on Monday with the company’s co-founder and CEO promising to give customers “an amazing entertainment experience”.
Specifically, it is offering access to “tens of thousands of hours” of film and TV programmes for £5.99 a month in the UK and €6.99 a month in Ireland.
However, leading analysts told European Communications that operators should not be overly concerned.
Analysys Mason’s Cesar Bachelet said Netflix was “unlikely to gain traction in the medium term”, while Ovum’s Adrian Drury said success was “not a certainty” and there was “significant execution risk”.
Added Bachelet: “Crucially, Netflix is entering this competitive market without the benefit of an established subscriber base.”
Aside from the UK’s major pay-TV providers, such as BSkyB and Virgin Media who account for 90 percent of the market, BT is the leading telco with an interest in this space.
The former incumbent’s BT Vision business is a triple-play service that provides telephony, broadband and TV to 638,000 customers. It offers a hybrid of 70 Freeview channels with an unlimited package that costs £12.50 a month.
When contacted by European Communications, BT declined to comment on the launch of its new competitor.
Perhaps the most significant problem for telcos such as BT in this space is a lack of exclusive or premium content.
“For those operators that have launched IPTV services, a lack of access to premium content leaves them vulnerable to companies such as Netflix,” said Drury.
Another obvious problem – and one that affects operators with no IPTV presence – is network capacity. “Services such as Netflix form a material part of network traffic,” confirmed Drury.
If analysts are proved right and Netflix’s impact is minimal in the short to medium term, current techniques such as throttling will no doubt continue without recourse to more drastic action.
Mobile traffic is a different issue. Although traffic from mobile devices trails fixed at present, its well-documented growth means forward-planning operators will need to plan for a change.
According to video optimization vendor Bytemobile, video accounts for 60 percent of mobile data traffic. “We expect Netflix’s appearance in the UK to boost the level of video traffic,” the company’s COO Chris Koopmans told European Communications.
“As traffic levels increase and networks clog up, new traffic management methods can enable carriers to offer content providers with an option for improved subscription models,” he added, citing content optimisation and caching, policy control, traffic management, and analytics as examples.
Clearly, Netflix is using the UK and Ireland as test bed as it attempts to expand in Europe.
Although expectations appear muted, Drury warned that it could move quickly if or when it makes a breakthrough.
“Netflix is a virtualized business, so it leases infrastructure as it needs to and can quickly scale when the opportunity arises,” he said.
Europe’s other main operators with a significant IPTV interest, such as Belgacom, France Telecom, Deutsche Telekom and Telefonica, will be watching how the story progresses.
In particular, Netflix has so far resisted exclusivity agreements with ISPs and it will be interesting to see if their stance changes should take up not be up to expectations or whether this strategy will prevail in the long term.
Bachelet predicts another outcome: “[Netflix’s] services may well have far greater appeal as secondary services on the growing number of secondary household TV sets, for which consumers typically are inclined to spend less.”
For Drury, there is only one response that operators need to concern themselves with: "Ensure you understand your market and your customers."