IHS Report: Pay-TV Operators Benefit from Offering Netflix

LONDON: A new report from IHS finds that integrating Netflix into traditional pay-TV services has had a net positive impact on these operators’ performance.

The results from the IHS survey, detailed in the Netflix on Pay TV: A Marriage of Convenience report, support the view that third-party video streaming services positively impact operators’ performance and complement traditional channels and VOD offerings. Netflix has partnerships in place with 25 pay-TV providers, according to IHS, with many more likely to follow after its expansion into 130 new territories last month.

“Many of the operators working with Netflix have seen customer satisfaction ratings improve under the partnerships, which have helped foster positive operational performances,” said Ted Hall, research director at IHS Technology.

In terms of revenue, operators typically receive a share of the ongoing subscription fees only for customers that sign up via that operator’s set-top box, the IHS report states. This is “insignificant,” though, as most Netflix users either already have an account or sign up via a more user-friendly device such as a computer or tablet. “Netflix is a both less lucrative and more dangerous content partner to work with than the other premium networks pay-TV providers traditionally partner with, such as HBO,” Hall said. “But collaborating with the ever-popular streaming service is necessary for many operators positioning their platforms as one-stop-shop ecosystems for TV and video content.”

Also, these partnerships are not appropriate for all: operators investing in their own movies and entertainment content typically remain wary of working with Netflix. As Netflix becomes more popular, some operators are concerned that it has the potential to negatively impact core pay-TV services and, in turn, average revenue per user and revenues overall.

“Netflix plays at least some, likely small, role as an upsell driver for some operators, whose customers can only access the app via their most advanced set-top boxes,” Hall said. “This is the case for 10 of Netflix’s 25 operator partners, primarily those using TiVo as their technology partner, in addition to Orange, Bouygues and Elisa.”

Concerns were also expressed that some of operators’ core channel packages and VOD services could be at risk in the longer term, as growing numbers of pay-TV subscribers access Netflix. The increasing Netflix usage could prompt pay-TV customers either subscribing to or considering premium movie services to reconsider their need for these higher-cost packages. “Europe, where HBO has achieved consistent subscriber growth in recent years, will be more resilient to this than the U.S.,” Hall said.