Netflix, or the importance of copyright
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Source: Netflix, Vietecon.com calculations
Back in 1999 or so, a friend told me about a new service called Netflix that would send you DVDs. You could watch them at your leisure and send them back whenever. No late fees. I think I signed up for the 3-dvd service, which for $10 a month or something. (It’s now about $15, which is still a great deal).
I loved the service, but when I got a job on Wall Street and later moved abroad, I wasn’t able to keep up. Until they introduced streaming. Which was wonderful. I am again a Netflix subscriber, one of 158m as of the end of 9M.
Source: Netflix, chart by Vietecon.com
Netflix is all over the world. Key exception is China. But it is in Vietnam. Subscriber growth in Asia has actually been quite strong, reaching 14.5m by 3Q2019, and delivering more than $1bn in revenue in 9M2019 and should reach just under $1.5bn for the full year.
At the beginning of 2017, the company had 4.7m members in Asia, so it has tripled that figure in less than 2 years. And it is still is growing, with more than 1 million net new subscriptions every quarter.
Very little of this is coming from Vietnam, though. There had been media reports that 300,000 people had accounts, which would actually be impressive given language and payment barriers. But a spokesperson said that the actual subscriber number was much less than 300,000 as of October 2019.
Why has Netflix failed so far in Vietnam?
There are a number of reasons:
Payments - for a while Netflix required an internationally-accepted credit or debit card. Vietnam is a cash county - 90% of daily transactions are in cash. This is a problem, but one that can easily be fixed. At some point, people will be able to buy Netflix top ups at the corner store, or pay by phone/bank, I assume.
Language - Until October of this year, the company did not have a Vietnamese-language interface. Now it does, which will likely help increase viewers.
Government regulation - In September, “broadcasting watchdog asked TV manufacturers to disable access to Netflix on their smart TVs, accusing the streaming service of failing to comply with regulations on content management.” It sounds like the company is going to work with the government on this. Probably will mean some sort of censorship…
Tax - The company is also working with the government on the company’s “tax responsibilities” in SE Asia. If Netflix is getting revenue in Vietnam, I bet the Vietnamese tax authorities are going to want to tax that revenue.
I think that Netflix is working on resolving a lot of these issues to increase subscribers in Vietnam. It will be a struggle though. And a lot of these issues are Netflix specific, meaning that Vietnamese companies may not face them. But, I would say that one of the bigger hurdles for all services is that most Vietnamese do not pay for content.
According to data published at the latest workshop on protecting the copyright of television content, the total number of visitors of illegal movie streaming websites in 2017’s first half was 236 million, 29-times higher than the total visitor number of authenticated websites.
The US Trade Representative has a report out every year that looks at the worst offenders of IP piracy. Vietnam has been up there for a while. It’s not just media content, but also fake copyright goods and counterfeit pharmaceuticals.
I actually have some issues with how aggressive the US is in enforcing copyright on pharmaceuticals, because it raises the prices of necessary drugs in poor countries. But again, the US consumer is paying very high pharmaceutical prices to incentivize companies to do R&D, and maybe it could pay less, if the rest of the world was paying its share. [This whole issue would take a longer post to go through, so let’s just say that there are lots to discuss around pharma pricing.]
But I have fewer issues with enforcement of copyright around content. At one point, the most popular illegal streaming movie site was hosted in Vietnam, although it appears to have been moved to Ukraine.
Why should we care?
I know that it is seems not that important whether Netflix is able to compete in Vietnam, and ultimately it probably isn’t. But I actually think its a bigger deal for Vietnamese content creators. They need to be paid as well, and it is already hard to be an artist out there.
All of the over-the-top (OTT) companies, locals too, face competition from streaming sites. That has really limited signups:
“Kagan estimates OTT video paid subscriptions in Vietnam reached 4.1% of broadband households in 2018 and should grow at an approximate 21% CAGR over the next five years.”
Pay TV penetration is almost at 50% of households, according to the Asian Video Industry Association. But over-the-top services have just a 3% penetration rate. So there is room to grow, but fixing the competitive landscape is going to be key.
I think as Vietnam signs up for these trade deals, we could see a lot more pressure to fix this by blocking illegal streaming sites. And it shouldn’t be difficult - the government already focuses on certain types of content and blocks that. It should be able to do the same with illegal streaming.
If it was much harder to stream illegally, then we should start to see a pick up. However, Netflix, while it might be the aspirational play, is about 3x more expensive than iFlix ($3 vs $10 per month).
Ultimately, if Vietnam cracks down on illegal streaming, and the Vietnamese actually start to pay for content, this will trickle down to the artists that are making the content. That’s personally what I care about.