• Video-on-demand services look set to grow rapidly in Southeast Asia, supported by an expanding internet infrastructure and increasing demand for over-the-top content.
  • Homegrown start-ups such as iFlix and Hooq offer stern competition for global giant Netflix, thanks to lower subscription fee offerings, more local content and a more flexible, localised approach.
  • Netflix should, however, be able to lean on its high-quality original content, growing use of smart TVs and a recent regulatory loosening to carve out a niche at the higher end of the market. 

The latest survey of urban consumers from FT Confidential Research suggests that Southeast Asia has the potential to become a new boom market for subscription video-on-demand (SVOD) services, with internet-sourced entertainment already more popular than television among respondents in Indonesia, the region’s biggest online market (see chart).

FTCR asked Indonesian respondents which types of media they most frequently use to watch movies or TV, allowing up to two answers: 53.9 per cent said they used the internet via a computer, 46.8 per cent used the internet on a smartphone or tablet, but just 45.2 per cent said they used a TV and only 18.7 per cent said they used Cable TV (see chart).

Region-wide, a massive 90.4 per cent of our 5,000 survey respondents across Indonesia, Malaysia, the Philippines, Thailand and Vietnam, said they use free video-streaming site YouTube regularly, with nearly two-thirds using it daily (see chart).

This highlights the potential for providers of over-the-top content — which is delivered via the internet outside of traditional cable and satellite companies — in a region where more than half of the population of 650m now have internet access, and where analogous mass-market consumer services, such as social media, e-commerce and ride-sharing, have grown rapidly in recent years. Penetration rates are still low for VOD services, and subscription-based providers need to invest in educating consumers and promotion, but all signs suggest they will grow quickly.

Global pioneers such as Netflix, which debuted in the region January last year, should find opportunity for growth, though a number of homegrown players are emerging, at least two of which — Kuala Lumpur-based iFlix and Singapore-based Hooq — are already competing for regional dominance.

Pay-per-view still a popular outlet

Yet SVOD was still not the most popular paid streaming type in our survey. Google Play Movie & TV, which is a transactional video-on-demand (TVOD) provider — a pay-per-view service — was the most popular choice across Asean. We believe this is due to the widespread use of Android devices: the Google Play Movie & TV app has come pre-installed on all such devices in the region since July 2015.

In Indonesia, a key target market for streaming services, Google Play was selected as one of their two most frequently used services by 16.5 per cent of respondents.

The second most-used video-streaming outlet in the country was UseeTV, popular with 6.4 per cent of respondents. It provides a combination of subscription, pay-per-view and TV streaming — the last of which is free, which underpins its popularity. The SVOD and TVOD content is bundled with a subscription to IndiHome, the largest broadband Internet connection provider, Telekomunikasi Indonesia (Telkom), UseeTV’s parent company and the country’s largest telecommunications firm. This strategic advantage is unlikely to be enough for it to compete strongly in the longer term, however, given limited high-quality content.

Local players lead subscription streaming, for now

Among the pure subscription-based providers, iFlix was the most popular in Indonesia: 4.4 per cent said it was one of their two most frequently used video content providers, slightly ahead of Hooq with 3.9 per cent and Netflix with 2.2 per cent. iFlix was also the most popular service in Malaysia and shared top spot in Thailand with Netflix, which leads in the Philippines and Vietnam (see chart).

We attribute iFlix’s lead in the region’s biggest market to a lower subscription price point than Netflix (Rp39,000 [$2.93] v Rp109,000 a month in Indonesia) and its strong focus on providing local content — a strategy also adopted by Hooq. Eight out of 10 of iFlix’s current top shows are local or regional content.

“On pricing, entertainment must be benchmarked to the price of a movie ticket,” Hooq chief executive Peter Bithos told FTCR. The monthly fee for iFlix and Hooq is below this mark in all five Asean countries surveyed. With this price point, and based on income levels, we estimate that at least half the population in Asean 5 should be able to afford a subscription.

Another factor supporting growth among regional players is flexibility over payment. Many Southeast Asians are still not accustomed to authorising automatic recurring payments via credit or debit card. iFlix and Hooq allow a wide variety of payment methods, including Google billing, local e-wallet solutions, mobile carrier billing, top-up cards and payment via ATMs, while Netflix, for now at least, offers only credit card payment.

iFlix and Hooq also share a strategy of partnering with local telecoms providers through subscription bundling. This has proven effective in building a user base and supports their strategic focus targeting mobile streaming: iFlix told FTCR that 62 per cent of its users access content via mobile phones, while Hooq quoted 80 per cent. 

Plenty of space for Netflix

While iFlix and Hooq appear to be in strong positions, Netflix is still likely to grow rapidly in Indonesia. First and foremost, as iFlix head of Asia David Goldstein points out, iFlix and Netflix target different segments of the market, with the latter a more premium service primarily for use with larger displays, such as TVs.

In addition, Telkom in April agreed to unblock user access to Netflix, a ban that had been in place since January last year when Telkom declared Netflix was violating Indonesian censorship regulations. We believe the block was strongly influenced by Telkom’s ownership of UseeTV and its partnership with iFlix. The rescinding of the ban should boost Netflix significantly.

We also expect Netflix to benefit from its clear lead in production of exclusive original series, many of which have become worldwide successes, such as House of Cards. Netflix also has a larger collection of content for children than its regional competitors, which should appeal to young middle-class families.

Although Netflix’s subscription fee is more than double that of its local competitors, we still consider it competitive. It is only about half the cost of a cable TV subscription and a little more than the price of two movie tickets: in Indonesia, 13.2 per cent of the urban population go to the movies at least twice a month.

It will also benefit from growing sales of smart TVs, which almost always include the Netflix app in their operating systems.

We believe the Southeast Asian market is large and diverse enough to accommodate different providers. We expect US firms such as Amazon Video, Hulu and HBO to follow Netflix into the region.

More importantly, video-on-demand as a concept remains in its infancy and, in the near term at least, the emergence of competing new players will serve to heighten public awareness of the benefits of SVOD or TVOD vis-à-vis more traditional consumption models. Mr Goldstein said: “We view any SVOD usage as a positive as it is helping to educate the market on this relatively new service.”

— Andi Haswidi, Indonesia Researcher

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. Our team of researchers in these key markets combine findings from our proprietary surveys with on-the-ground research to provide predictive analysis for investors.