Johannesburg - The recent launch of Nasdaq-listed internet television giant Netflix in South Africa may be a game-changer in the burgeoning local video-on-demand market, posing as major competition to existing similar platforms.
However, internet accessibility and internet data costs in the country could play a big factor in determining the video-on-demand market’s growth or its stagnancy.
Netflix, which has a market capitalisation of $45.756 billion (R732bn), is a provider of on-demand content allowing the convenience of unlimited viewing of movie and TV series anytime on any internet-connected screen at a monthly flat rate starting from $7.99.
“Projections for growth of video-on-demand in general looks promising as ownership of smart devices becomes more prevalent and consumers’ content-consumption habits evolve,” Larry Annetts, the chief sales and marketing executive at MTN, said.
South Africa is likely to have between 692 000 and 917 500 active video-on-demand households by 2020, according to research by BMI-TechKnowledge.
On the other hand, worldwide video-on-demand was about 83 million last year and was expected to increase to 200 million subscribers by 2020, according to statistics portal Statista.
According to Mweb product, sales and marketing manager Carolyn Holgate, during the past two years South Africa experienced significant growth in subscription video-on-demand services.
“Netflix will add to this trend of watching videos online across devices, wherever and whenever is convenient for the consumer,” she added.
Internet and mobile technology expert Arthur Goldstuck said online-streaming services were popular among those with internet connections and that this service was not viable for those with poor internet connections.
The reality in South Africa was that most people did not have adequate internet access, he added.
According to the Internet Society Global Internet Report 2015, only 17 percent of the population in sub-Saharan Africa were internet users.
The report also stated mobile internet penetration was 8 percent, with a 35 percent 3G population coverage.
According to Statistics SA’s general household survey released in 2015, only a tenth of households had access to the internet at home, while access to the internet using all available means was highest in the Western Cape (62.1 percent), Gauteng (59.9 percent) and Free State (48.7 percent). The lowest was in Limpopo (32.6 percent) and Eastern Cape (37.4 percent).
Although there was already a significant demand for broadband in South Africa, particularly fixed-line, the entrance of Netflix into the local market would not immediately raise higher demand for broadband in the short term, Holgate said.
“There is a difference in growth overseas versus South Africa as free bandwidth is less available in public places (Wifi hotspots) and mobile bandwidth (3G/4G) is more costly in South Africa,” Alex Rummel, an information technology expert and director at Grapevine Interactive, said.
He said people were increasingly attempting to stream content to their phones and tablets.
“Mobile networks are starting to target this sector through dedicated and bigger data bundles and I believe a reasonable offering (cost-to-value) will emerge over the next two to three years.”
MTN introduced FrontRow, later rebranded into VU, in the market comprising only a few other video-on-demand services, which include Vidi (owned by Times Media Group), OntapTV (owned by Hong Kong telecoms operator HKT), ShowMax (owned by Naspers) and the collapsed Altech Node (owned by Altron).
“We expect VU to grow gradually and steadily. Digital entertainment is gaining traction in South Africa. Growth is looking very positive as customers become more aware of the product offerings and benefits,” Annetts said.
Vodacom had previously announced plans to partner with video-on-demand services.
“Vodacom remains in discussions with numerous video-on-demand providers and will make an announcement in due course,” spokesman Tshepo Ramodibe said.
He added that these discussions were in line with Vodacom’s business strategy to add new service offerings, including content.
With content streaming occurring mostly on mobile devices, data cost will have a bearing on the growth of the video-on-demand market.
Netflix began as an online movie rental business in 1997, eventually revolutionising the movie and TV watching experience by introducing online streaming in 2007.
The traditional movie-rental industry has taken a back seat over the years.
According to Jaco de Beer, the owner of DVD 80, the DVD rental industry fluctuates in terms of growth and is influenced by a lot of factors.
He said in his own business, he retained regular customers even after the launch of the likes of ShowMax and Netflix, adding that these services might have an influence on the younger generation.
Goldstuck said Netflix remained a niche service in South Africa and that traditional TV would remain a relied-upon medium as existing services in South Africa had a broader range of content.
Pay-media business provider MultiChoice said it welcomed competition in the payTV and entertainment industry as it believed “it is good for consumers as it gives them more options”.
Netflix plans to spend more than $700 million on technology and development this year.
Although it had a global footprint, a Netflix representative said there was no current plan to establish an office in the African region.