Arthur Goldstruck. Picture: FINANCIAL MAIL
Arthur Goldstruck. Picture: FINANCIAL MAIL

US-BASED video-on-demand subscription service Netflix faces massive challenges in entering SA because the connectivity environment has not been conducive to streaming video, analysts say.

On Wednesday, Netflix switched on its South African service as part of a wider launch in 130 other countries. However, technology analyst Arthur Goldstuck said streaming video-on-demand was a long way from being a mass-market offering.

The service’s requirement for appropriate devices, reasonable bandwidth and monthly subscription fees meant it was still geared towards the upper end of the market.

Mr Goldstuck said online video-on-demand posed a limited threat to MultiChoice’s DStv — which enjoys a near-monopoly in the pay-TV market — as it could not offer live sports. It also could not get the rights to new video content for which DStv signed first or exclusive rights, he said.

"The jewel in DStv’s crown is its live sports rights, in particular English Premier League football. In Nigeria, for example, that alone has killed off the competition."

Even so, Netflix’s entrance is expected to heighten competition in an industry that has struggled to fully establish itself in SA.

A number of video-on-demand services were launched in the past two years including Tiso Blackstar’s Vidi, MTN’s FrontRow, Altech Node, Naspers’s ShowMax and ONTAP-tv.com. But take-up has been largely poor and some have pulled out or are mulling withdrawing. In addition to the discontinuation of Tiso Blackstar’s Vidi, Altech Node has been shelved.

"The reason existing services have not yet taken off in a big way is because the connectivity environment has not been very conducive to streaming video, and almost every single service misread the market in terms of pricing," Mr Goldstuck said. MTN even relaunched its service with new pricing so as not to be seen to be cutting prices, he said.

"The rest have dropped prices. It is possible that when Netflix launches more formally in SA, it will provide a rand-based price that is more in line with the R79-R89 monthly subscription from other providers."

Netflix is priced at $7.99 a month for its basic offering.

The potential for streaming video was nonetheless huge. "We should never underestimate the public’s appetite for entertainment," he said.

"The reason so many services have launched while the environment is not yet conducive to streaming video is they don’t want to be playing catch-up when the market is more ready."

Sasha Naryshkine and Michael Treherne, analysts at private client asset management firm Vestact, said part of Netflix’s business model was to produce its own shows that had been hugely successful, with House of Cards, Marco Polo and Narcos coming out of its studios.

"These shows increase their margins because they don’t have to pay a third party for broadcasting rights and it is a massive drawcard to sign up new customers. Very exciting company, one of the top shares last year more than doubling in value and a new era for us in SA."

South African video-on-demand penetration forecasts range from 692,000 to 917,500 active-user households by 2020, according to research firm BMI-TechKnowledge.

The report, released last year, shows that awareness of such services is relatively low, with only 18% of respondents saying they were aware of video-on-demand providers.

ShowMax spokesman Richard Boorman said it was good news that Netflix had entered the South African market as this would generate additional interest in internet TV.

"We are at the cusp of a second connectivity boom in SA, driven by FTTH (fibre to the home) and fixed-mobile LTE (long-term evolution). This should interest in services like ShowMax," Mr Boorman said.