File image: Wesley Diphoko, Head of the Independent Digital Lab. (IOL).
CAPE TOWN - Multichoice (DStv) borrowed the taxi industry script when they complained about Netflix. In the same way that the taxi industry complains about Uber, MultiChoice is claiming that Netflix has an unfair advantage.

They argued in Parliament recently that since services such as Netflix are not regulated they, therefore, have an unfair advantage and should also be regulated.

While it is true that Netflix is not regulated in the same manner that MultiChoice is, it is disingenuous to argue that Netflix has an unfair advantage.

DStv is based on a different platform, as the Netflix platform is built on the internet and is therefore subjected to the regulations that regulate the internet as well as challenges associated with internet-based services.

A careful study of the history of Netflix shows that it was not easy to create the streaming video service. The company faced numerous challenges to get to where it is.

It started as an online DVD rental company in 1998. In 1999 Netflix began offering an online subscription service through the internet. Netflix members chose movie and television titles from Netflix’s website; they would then be mailed to members in the form of DVDs, along with prepaid return envelopes. This process must have presented Netflix with challenges which then led to the creation and offering of the streaming option service in 2007.

Even in the early days of streaming, Netflix must have encountered challenges in the process of seeking partnerships with manufacturers of various consumer electronics, including video game consoles and Blu-ray disc players to enable its videos to be streamed over an Internet connection to those devices. Later, Netflix must have realised that the DVDs were presenting a challenge and therefore, in 2010, they introduced the streaming-only service that offered unlimited streaming.

Even during the expansion years in moving beyond the US the company must have experienced challenges related to content in different territories. Netflix also faced many competitors along the way, and one competitor posed a unique challenge. Amazon became a competitor to Netflix even though they were a service provider (hosting service) to Netflix. This must have been a pain point as Amazon replicated the service for Amazon subscribers.

Now that Netflix is operating on the African continent there are definitely challenges. One is internet quality and penetration. Although this will improve, it is currently a major reason why some users may prefer to stay with DStv. The company has also faced difficulties in entering the China market.

The Netflix history offers many lessons for traditional companies, governments and policy makers. South African traditional companies should learn a lot from the developments around MultiChoice (DStv) and Netflix, in the same way that lessons should be drawn from taxis and Uber.

Major shift

The major lesson here is to understand that there's a major shift that is taking place in the world. Old economy (big) companies are being challenged by new (small, start-up) companies. The means with which they challenge, however, is not based on the same resources and infrastructure upon which old companies are built. The new companies tend to use efficient, economical and scalable means that presents old economy companies with a difficulty to adapt.

The regulatory area is one area that serves as the weapon for new economy companies. The old companies were built to adhere to old economic rules and regulations. The new economy companies work around these regulations and they present a solution enabled by technology.

To address this, new regulations and rules of the game would have to be created for the new economy companies.

Rules are being developed for new economy companies, such as privacy and data laws, which will prove to be a stumbling block and have an equalising effect for old economy companies.

It would be a mistake to apply old economy rules to new economy companies.

Governments should not entertain calls by threatened parties for rules to be changed in order to neutralise their competitors.

Policy makers should move with speed to make rules that focus on new economy companies and those rules need not be the same as those for old economy companies.

Companies such as MultiChoice as well as the taxi industry should understand that competition will come from anywhere (small players and any part of the world).

When they are confronted with such challenges they should not respond unkindly in the same way that the taxi industry has responded to Uber. As for MultiChoice, they should respond by innovating and not by lobbying policy makers to make rules that suit their agenda.

Today the challenger is Netflix in the video entertainment industry, tomorrow it will be radio stations complaining about a similar entrant or even banks complaining about new banking innovations. The response to these developments should be innovation, innovation and innovation.

Wesley Diphoko is the founder of Kaya Labs. He is chairperson of the IEEE Open Data Initiative (Industry Connections programme) in South Africa. 

Follow him on Twitter for more insights on the Information Economy: @WesleyDiphoko.

-BUSINESS REPORT