1 Reason Why Netflix Inc is an Opportunity for Singapore Telcos

Credit: Fool Editorial

Netflix Inc, a popular U.S.-based video streaming service, has started to make its way into conversations regarding Singapore’s telecommunications sector.

Firstly, Starhub Ltd (SGX: CC3) said in its recent earnings presentation that it is in commercial discussions with Netflix. In another earnings call, Singapore Telecommunications Limited (SGX: Z74) was asked about its strategy in partnering Netflix.

From these exchanges, it would seem like Netflix is seen as both a threat (it’s worth noting that Singapore’s telcos also offer their own pay TV subscription services) as much as an opportunity for the local telcos. So, is Netflix a friend, a foe, or both?

Opportunity is abound

Before I continue, I should mention that I have owned shares of Netflix since early 2007. I have followed its business developments for the past eight years, and have watched it evolve from its days as a DVD-by-mail provider to its current status as an important player in the video streaming scene in the U.S and other parts of the world.

To understand whether Netflix is a threat or opportunity, we should first understand what Netflix brings to the table.

Notably, Netflix still needs a broadband connection to deliver its content into customers’ homes. These home broadband connections, in Singapore at least, are offered by Starhub, M1 and Singtel. As such, the local telcos have the opportunity to work with the U.S. streaming giant.

Optus, an Australia-based telco that’s wholly-owned by Singtel, may have already shown the way on how such a collaboration could work.

Optus launched a bundled service with Netflix in Australia earlier this year, offering six months of free Netflix subscriptions together with a mobile or fixed broadband service. Allen Lew, Singtel’s Chief Executive Officer (Consumer Australia), shared more about the deal between Optus and Netflix in a recent earnings presentation:

“So the benefit to us is the brand association that goes with Netflix and the fact that they don’t just get access to the internet but they also get content bundled with it, and we get the uplift in terms of people coming to us for that.

So I think that is the major sort of impact that we get as a result of linking it up to Netflix and creating that brand awareness and that brand association within something that’s relatively new and the Optus brand which stands for Living More Yes. So I think that’s the sort of benefits at the two levels that we get.”

The partnership appears to have been a success. As Optus benefits from more sign-ups, an estimated 2.5 million Australians have used Netflix in the three months since the launch of the bundled services.

The risk, of course, is that the deals may not be exclusive. The trio of local telcos may end up competing on offering the better bundle or worse, being a “dumb pipe” to a value added service such as Netflix.

The Foolish bottom-line

ViewQuest, a local virtual private network (VPN) provider, recently revealed that more than half of its internet traffic in Singapore was from users of Netflix. The high level of usage may suggest that there is a high consumer demand in Singapore as well.

The arrival of Netflix does not have to be a threat alone. If the local telcos play their cards right, it can be a benefit as well.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Netflix.