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The one chart that proves Netflix’s dominance over Foxtel

Netflix made its Australian debut just seven weeks ago, but it has already taken audiences by storm with data showing that the streaming giant has already surpassed Foxtel as the market’s favourite source of entertainment.

According to statistics from Australian budgeting app Pocketbook, Netflix’s launch down-under was three times more successful than that of its rival Stan, which is owned by Fairfax Media Limited (ASX: FXJ) and Nine Entertainment Co Holdings Ltd (ASX: NEC). It is estimated that Stan enjoys 7% of the total market, which I expect may have been bolstered by its early offering of Breaking Bad spinoff, Better Call Saul.

More alarmingly however, the statistics showed that Netflix already had a 1% advantage over Foxtel in April, where Foxtel had 38% of the market compared to Netflix’s 39%.

Source: Pocketbook

Source: Pocketbook

While Netflix’s CEO, Reed Hastings, has stated that Netflix is no substitute for cable TV (for instance, it doesn’t offer any sports), this could be the beginning of a troubling trend for Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS) (which own Foxtel). Netflix’s offering is significantly cheaper than Foxtel’s and can be streamed to more than one device (depending on which plan you subscribe to), while further programs and movies will be added to the service in the future.

To quote Pocketbook, “Based on (the data provided), we can confidently conclude that Netflix is going to grow to be the dominant player in the media subscription landscape in Australia in the not too distant future.” That is further highlighted in the charts below:

Source: Pocketbook

Source: Pocketbook

Netflix’s arrival in Australia is also bad news for our free-to-air networks. Ten Network Holdings Limited (ASX: TEN), Seven West Media Ltd (ASX: SWM) and Nine Entertainment Co have all been facing strong headwinds for years as advertising dollars (and viewing hours) have increasingly been focused online from services such as Facebook and YouTube.

While Seven and Nine have both expanded into the online streaming space in an attempt to hold Netflix’s growth at bay, the decline in advertising revenues in their core free-to-air networks will likely continue to fall which would have a material impact on the companies’ overall earnings. As such, investors would be wise to avoid this sector altogether.

On the other hand, investors could look to Australia’s telecommunications sector for ways to profit from the changing entertainment landscape. With more and more videos being streamed online, services from telcos such as TPG Telecom Ltd (ASX: TPM) and M2 Group Ltd (ASX: MTU) will only increase in demand which could result in substantial growth over the coming years.

Given the pair are both currently engaged in a bidding war for iiNet Limited (ASX: IIN), now mightn’t be the greatest time to buy, but they certainly deserve a position on your long-term watchlist.

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Motley Fool contributor Ryan Newman owns shares in Facebook. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool owns shares of Facebook, Netflix and Google. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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