TBI Weekly: Will China’s media giants push Netflix out of Asia-Pacific?

Netflix is, for now, the undisputed global king of streaming, boasting close to 183 million subscribers across most corners of the world – but not quite everywhere.

Mainland China is one territory where Netflix has yet to gain a foothold. It is instead ruled by its local media giants Baidu, Alibaba and Tencent, known collectively as BAT, and developments in the past couple of weeks suggest that China, and the wider Asia-Pacific region, could soon produce its own contender to finally oust Netflix and claim the streaming throne.

Recent reports suggest that WeTV operator Tencent and iQiyi might be ready to bury their rivalry and form a merger; a union that would create the world’s biggest streaming service.

Tencent is reported to have approached Baidu, iQiyi’s majority shareholder, with a strategy designed to reduce both service’s costs and counter competition. Both iQiyi and Tencent claim more than 110 million paying subscribers, meaning a combined operation could potentially dwarf Netflix’s customer list.

Both streamers have been ramping up spending on their content offerings in recent years, with iQiyi’s including 2015 hit The Lost Tomb and more recent shows The Thunder and Golden Eyes. Tencent’s output, meanwhile, includes The Untamed and acquired programming such as HBO’s Game Of Thrones.

The Lost Tomb

Fighting the corner

But it’s not just iQiyi that Tencent has had its eye on. Yesterday, the company admitted it is poised to buy a slew of assets belonging to pan-Asian streamer Iflix for an undisclosed sum.

That’s a further 25 million active users to be picked up from the Malaysian-based company, in an acquisition that TBI market analyst sibling Omdia has described as “by far the biggest international expansion by Chinese companies in the online video sector.”

It will also bring a swathe of new content to the Chinese service, including Iflix originals output such as romantic drama Ombak Rindu and horror series Kisah Tanah Jawa.

All this movement is not without cause. Netflix gained 3.6 million new subscribers in the Asia-Pacific region in Q1 2020; a 22% increase on 2019, making it the streamer’s highest growth region, with affordable mobile-only subscriptions playing a big part in its success. Given the gains that Netflix is making, it comes as no surprise that the local leaders are pushing back.

“Iflix’s local appeal and knowledge, including content and existing telco partnerships, will complement Tencent’s capabilities in technology and content. With the addition of Iflix’s operations in the aforementioned countries, Tencent will considerably increase its presence outside of China,” says Jun Wen Woo, Malaysia-based senior research analyst for online video at Omdia.

“Following the acquisition, we expect Tencent Video will combine its international online video service, WeTV, with Iflix to streamline its online video operations in this region.”

Tencent isn’t the only member of BAT looking to cut a bigger slice of the Asia-Pacific pie, either. Last November, iQiyi announced a strategic partnership with Malaysian pay-TV operator Astro Malaysia Holdings to launch its streamer in the country, while in May last year, Alibaba invested an additional $100m in its social video app Vmate to expand its presence in India.

Indeed, India is set to be one of the key battlegrounds in the struggle for Asia-Pacific streaming domination. While Netflix is already well established there with a raft of originals such as ratings hit Delhi Crime, it is a comparatively younger and far less crowded market than China, with ripe opportunities for vast growth.

Delhi Crime

Pirates of the Asia-Pacific

However the race to expand across Asia-Pacific goes, the region remains a tough market to crack. Omdia’s Woo describes online video piracy as “rampant”, drawing away potential subscribers, while free-to-air channels and pay-TV viewership both remain strong.

It is this challenge to monetise online video services, especially considering the low average revenue per user in the Asia-Pacific region, that has seen competitors to the BAT-supported platforms give up the contest.

Aside from Iflix going up for sale in the face of mounting financial difficulties, streaming service Hooq, which was jointly launched by Singapore telecoms operator Singtel, Sony Pictures Television and Warner Bros in 2015, and operated in India, Indonesia, Philippines, Singapore and Thailand, filed for liquidation in March.

It too struggled to maintain returns in the face of market competition and widespread piracy.

Omdia has forecast further consolidations in the next few years as developing markets, notably India, Indonesia, the Philippines and Vietnam, continue to grow. So perhaps a Tencent/iQiyi merger to create the world’s biggest streaming service might not be the most unlikely way to capitalise on these opportunities – before Netflix grows even stronger.

Woo does make one suggestion for those hoping to succeed in the Asia-Pacific territory. “A hybrid model, which is the combination of an advertising-supported model and subscription model, is the best way to attract users and maintain source of revenue in this region.”

Our next TBI Talks webinar ‘Capitalising On Asia’s Global Reach’ will feature leading executives discussing opportunities in this rapidly growing market. Click here to register for the talk.