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3 Reasons Why Netflix Inc is a Threat to 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 telecommunication companies.

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 (keeping in mind that the telcos have their own pay TV subscription services) as much as an opportunity for the local telcos. But, which is it really?

Reasons to worry

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.

Threat No. 1: Scale – click here

Threat No. 2: Big Data – click here

Threat No. 3: Internet TV

The first two threats come from Netflix’s scale and huge stockpile of data.

The third threat may come in how consumers has shifted their preference towards Internet TV. The current linear TV experience involves channels presenting programs at fixed times on non-portable screens. Internet TV, on the other hand, makes itself available on multiple-screens (think Smart TVs, tablets, and smartphones) and allows viewers to choose programs on demand and receive personalized recommendations.

Both Singtel and StarHub have made efforts to adapt to this new Internet TV world. But, the signs have not been encouraging so far.

Earlier this year, Singtel launched its own mobile streaming service, HOOQ, together with Sony Entertainment and Warner Bros. The service was targeted at the Philippines, Indonesia, India, and Thailand. In Singtel’s latest quarter, the telecommunications giant only reported S$2 million in revenue for the sub-segment containing its HOOQ service – that does not inspire much confidence in the new offering.

A few months back in August, StarHub had launched its own StarHub GO online streaming service. Concurrent with the launch was the introduction of HBO Inc.’s HBO GO service on StarHub GO.. It’s still early days yet for StarHub GO, but a quick look at its iTunes ratings (one star out of five) again does not inspire confidence.

Singtel and StarHub’s internet TV efforts are still very new, but the pending arrival of Netflix may set the standard which may leave the current incumbents playing a tough game of catch-up.

The Foolish bottom-line

ViewQuest, a local virtual private network (VPN) provider, 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 great consumer demand for Netflix in Singapore.

As such, Foolish Investors may want to keep in mind how Netflix’s scale and huge database may be a threat to the local incumbents. In an Internet TV world, StarHub and Singtel may have their work cut out for them.

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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.