Is Netflix the Armageddon for Australia’s free-to-air networks?

Netflix’s arrival into Australia is a huge threat for Ten Network Holdings Limited (ASX:TEN), Nine Entertainment Co Holdings Ltd (ASX:NEC) and Seven West Media Ltd (ASX:SWM), as well as Foxtel

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Netflix might have only hit Australian shores one week ago, but it has already created a splash which could indicate the beginning of the end for our free-to-air television networks.

Netflix is a US-based online streaming giant, which offers movies and TV shows on-demand for as little as $8.99 per month. Although the company is yet to release any official figures showing the number of local subscribers it has thus far managed to recruit, data released by local telecommunications company iiNet Limited (ASX: IIN) gives an indication of just how big Netflix could soon become.

Earlier in the month, iiNet entered a partnership with Netflix whereby iiNet will offer its customers unmetered access to the on-demand content. That means, customers will not be charged for the data downloads associated with watching Netflix’s content online.

Here’s the kicker…

As quoted by the Fairfax press, an iiNet spokesman said: “Netflix has already reached 15 per cent of iiNet’s consumer traffic in the first two days since launch. We are terrifically excited by the response” (emphasis added). Fairfax also stated that if Netflix included the Australians accessing Netflix USA through virtual private networks (estimated to be around 200,000 people), Netflix could account for roughly 25% of iiNet’s broadband traffic.

Although Netflix Australia doesn’t have the same volume of content as it does elsewhere in the world, its content will grow over time giving consumers even more bang for their buck. At $8.99 per month however (or $14.99 per month on its premium package), consumers are getting a reasonable deal.

To begin with, it’s much cheaper than Foxtel, which is owned by Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS), while viewers don’t have to put up with the long ad breaks that are the lifeblood of free-to-air broadcasting.

Free-to-air Armageddon?

Fairfax recently quoted NBN Co board member and Internode founder Simon Hackett as saying “that commercial television, as it currently exists, has five years left… [By] 2020, there won’t be much left of our broadcast television.”

It couldn’t be clearer that Australia’s entertainment landscape is changing rapidly. While free-to-air networks such as Ten Network Holdings Limited (ASX: TEN), Nine Entertainment Co Holdings Ltd (ASX: NEC) and Seven West Media Ltd (ASX: SWM) are feeling the pain of reduced advertising income, they even joined forces to create their own subscription video-on-demand (SVOD) services to contend with the arrival of Netflix.

Foxtel and Seven West Media partnered on Presto, while Nine paired up with Fairfax Media Limited (ASX: FXJ) to create Stan. This has not only empowered viewers to watch what they want when they want, but to also save time by not having to wait through long ad-breaks every ten minutes or so.

Although this is a defensive (and arguably necessary) move by the networks and Foxtel, it will also involve cannibalisation on their existing services which could further impact advertising revenue. While Stan and Presto offer plenty of great TV shows and movies through their services, time will tell whether or not they have the firepower to stand up to the industry behemoth that is Netflix.

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