Netflix is still killing it in Australia

Streaming video on demand (SVOD) provider Netflix reached 2,728,000 Australians and more than 1 million households by the end of December 2015 according to the latest research from Roy Morgan.

While growth is slowing, it is understandable.

Having launched in Australia in March 2015, the take up by Australians for the new service was incredible – with more than 1 million Australians subscribing in just two months. But it’s impossible to continue growing subscribers at 47% each month for any service, and it also appears that the fall in growth may have been due to the expiry of six-month trials handed out by Optus in March.

Netflix subscribers dec 2015

Source: Roy Morgan Research

Still, Netflix is well ahead of its competitors, with Stan – jointly owned by Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ) which is on track for 700,000 sign ups by Australia Day – which also happens to be its one-year anniversary.

In third place is Presto – jointly owned by Foxtel and Seven West Media Ltd (ASX: SWM). Foxtel is also a joint venture between Telstra Corporation Ltd (ASX: TLS) and News Corp (ASX: NWS).

The sector is unlikely to be a winner take all unless Netflix can garner the same plus additional content over and above its competitors. But the huge takeup of SVOD services is a giant blow to Foxtel. Already the Pay TV provider has had to lower its subscription fees and evidence suggests many subscribers are abandoning the add on movie and entertainment packs provided by Foxtel.

When Netflix charges just A$8.99 for its Basic package, which includes unlimited movies and TV shows, that’s just no comparison to Foxtel, which wants to charge subscribers $25 a month for its basic Entertainment Pack, another $20 a month for movies or $45 a month for its Drama Combo. The one true diamond Foxtel has is its Sports pack- which it can still charge $25 a month for, with many Australian sports mad. But Foxtel’s advantage is unlikely to last forever.

As for the free-to-air broadcasters, Seven, Nine and Ten Network Holdings Ltd (ASX: TEN), I’ve long argued that there’s no longer room for three profitable networks and their only option is to adapt or die. That might be through mergers with the regional networks if reach rules are relaxed, or as in the case of Nine and Seven, expansion into other sectors such as Stan and Presto.

Foolish takeaway

Netflix is well and truly here to stay in Australia and unlikely to lose its market leading position (despite claims by News Corp’s The Australian that Netflix is being hurt by Presto and Stan). We may find that over time Australians subscribe to more than one SVOD service as prices come down even further.

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Motley Fool writer/analyst Mike King owns shares in Telstra Corporation. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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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