HONG KONG -- Ultra-Broadband Summit -- A fast-growing digital startup in Southeast Asia is aiming to be the Netflix of emerging markets, and it sees partnerships with telcos as fundamental to its success.
Kuala Lumpur-based iflix began offering its video-streaming services just over a year ago and now claims to serve about a million customers across the markets of Malaysia, the Philippines and Thailand, having entered the latter as recently as November.
The company is specifically targeting emerging markets where it sees a huge appetite for TV and movie content among young and increasingly Internet-savvy consumers. For Tim Parsons, the company's technical advisor, two characteristics have assisted the company's rise: first, the technology "leapfrogging" effect, whereby broadband connection speeds in some emerging markets now exceed those in parts of the developed world; and second, the costliness of pay-TV services in these countries, with many consumers resorting to movie piracy -- usually in the form of bootleg DVDs -- to enjoy content.
These factors have undoubtedly helped iflix to sign content deals with some of the world's biggest players, including Walt Disney Co. (NYSE: DIS), Fox Broadcasting Co. , Paramount Pictures Corp. , Warner Bros. Entertainment Inc. and Metro-Goldwyn-Mayer Inc. (MGM), which happens to be an investor in the business, too. But iflix also boasts an understanding of local market conditions and a cost model that its movie-streaming rivals may struggle to match. Its Malaysian service, for example, is priced at just 8 Malaysian ringgits ($2.05) per month.
"The vision is to take disruptive video ideas and ensure that as many people as possible can access services," said Parsons during Huawei Technologies Co. Ltd. 's UBBS event in Hong Kong earlier this week. "We want to be the cheapest possible player." (See Ultra-Broadband Summit, Hong Kong.)
iflix's ability to form tie-ups with Southeast Asia's biggest telcos has been key. The startup has already announced strategic partnerships with operators including Malaysia's DiGi Telecommunications Sdn Bhd. , Filipino operator Philippine Long Distance Telephone Co. (PLDT) (another investor) and Telekom Malaysia Berhad . A new deal with Telkom Indonesia will see it enter the vast Indonesian market in the coming weeks. Netflix Inc. (Nasdaq: NFLX), by contrast, recently had its service blocked by the state-owned operator for breaching censorship laws and lacking the requisite business permit, according to various press reports.
According to Parsons, these relationships have given iflix instant access to a huge subscriber base, removing what he calls the "friction of sign-up," and allowed iflix to integrate its systems with those of the telcos. But they have also brought enormous benefits for service provider partners, he insists. "When you introduce content into a stack it drives more data use and that has an impact on average revenue per user," he said during the UBBS event. "We've been able to change the game for telcos."
iflix's technical knowhow has also paid dividends for operators in markets with poor backhaul facilities and paucity of local peering arrangements, claims Parsons. To ensure that content can be delivered efficiently and economically, the startup has been working with telco partners on the development of what he describes as "content distribution appliances," combining hardware and software elements so that content can be "cached" at the edge of the network. "We are helping companies move toward having their own CDN [content distribution network] infrastructure," he said.
No doubt, thriving as a profitable business in future will be challenging under these circumstances, especially if iflix is being forced to share much of its revenue with telco partners. Netflix's recent earnings update illustrated just how tough the movie-streaming business can be, with operating income for the January-to-March quarter nearly halving, to just $49 million, compared with the year-earlier quarter, even though both revenues and paid memberships rose 30%, to $1.8 billion and 77.7 million respectively.
Yet iflix is off to a strong start. As subscriptions have grown, so have employee numbers -- from just five to more than 250 in a 12-month period, according to Parsons. The company recently burnished its telco credentials by hiring David Goldstein, who previously worked at operators including Australia's Telstra Corp. Ltd. (ASX: TLS; NZK: TLS), Hong Kong's New World Mobility and Swisscom AG (NYSE: SCM), to head up its telco strategy and integration efforts. It is also setting up an operation in Prague, which hints at a future service launch in the markets of central and eastern Europe.
iflix also has some powerful backers besides MGM. Initially funded by investment firms Catcha Group and Evolution Media Capital, it raised $30 million in a round led by Catcha and PLDT this time last year. Earlier this month it revealed it had raised additional funding from European satellite company Sky and Indonesia's Emtek Group, without indicating how much.
"As we get large enough and get better at marketing locally we believe we can become one of world's largest providers of on-demand video," said Parsons in Hong Kong. iflix has a long way to go before it even comes close to Netflix. But if it can make its strategic partnerships work to its ultimate benefit, its emerging-markets focus holds plenty of promise.
— Iain Morris, , News Editor, Light Reading