1 Way Starhub Ltd Can Counter the Netflix Inc Threat

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.

Notably, 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 a threat as well as an opportunity. To the former, it’s worth noting that Singapore’s telcos also offer their own pay TV subscription services, so they are in some form of competition with Netflix’s potential offering in Singapore.

Countering threats

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.

For the third-quarter of 2015, Starhub’s Pay TV segment contributed around 16% of total revenue. This is a good chunk of revenue to be protected.

One approach StarHub has taken to defend its market share has been its hubbing strategy. In essence, the company bundles together its trio of services – namely mobile, pay TV, and broadband – for its customers. Discounts are also offered as part of the package deal.

The hubbing trend looks promising. StarHub has been increasing its number of triple service subscribers since 2007. This is summarized in the chart below:


Source: Starhub’s earnings presentation

At the end of the third-quarter of 2015, triple service customers made up around a third of StarHub’s overall subscriber base. Tan Tong Hai, StarHub’s chief executive, also made the following statements pointing to the effectiveness of the company’s hubbing strategy during the firm’s last earnings conference call:

“Our hubbing strategy is still very much relevant. We don’t sell single service, we sell combined with broadband and TV. I think this is very unique to StarHub. Of course, if you look at our hubbing stats, we have progressed well. We have just introduced StarHub Go, that combines broadband, TV, as well as mobile.

Pay TV was still resilient in spite of – I would say that most of these OTT solutions are around for quite some time. Netflix is available, kind of like from a VPN, some customers have already been accessing it. So in spite of this, you can see that for this year, the pay TV remains resilient.”

The hubbing strategy is not an offer that Netflix can make, in its current state. As such, StarHub may have a chance to hold its ground when Netflix officially enters the scene in Singapore.

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 great consumer demand in Singapore as well.

The arrival of Netflix does not mean that the local telcos will be folding their cards and leaving the table. There are ways to counter the threat, and StarHub’s hubbing strategy is one possible approach.

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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.