Streaming services in Australia – are there lessons to be learnt from the sale of Hulu Japan?

US-based online streaming service Hulu announced in February that it had sold its Japanese service (which launched three years ago) to Nippon Television Network Corporation (Nippon TV). Under the terms of the deal, Nippon TV assumes control of the day-to-day operations of the business and its management (when the deal completes). Nippon TV is the leading television network in Japan and 2013 marked its 60th year of broadcasting. The hope is that Nippon TV will take Hulu in Japan to the next level. According to Hulu, its Japanese service is currently available across 90 million devices.

As part of the deal, Hulu will be licensing its brand and technology to Nippon TV, while Nippon TV will be adding its popular TV titles to the service.  Currently, Hulu Japan has content from 50 partners, totaling more than 13,000 assets of TV dramas, movies and anime. There is also access to over 1,000 premium feature films like Armageddon, Iron Man, Slumdog Millionaire and The King’s Speech and over 12,000 episodes from previous seasons of TV shows including 24, The Big Bang Theory, Gossip Girl and The Walking Dead.

Hulu’s CEO Mike Hopkins said in a blog post announcing the deal that:

“I’m confident that the Hulu business in Japan is in very good hands, and Nippon TV will take the service to new heights, with the added benefit of allowing us to focus on our growing business here in the U.S. Thank you to all of our customers and partners across the globe for your continued loyalty and enthusiasm for Hulu.”

For a number of years now there have been rumours of US-based streaming services such as Hulu and Netflix launching in the Australian market. While these rumours have never come true, both Hulu and Netflix have taken steps to protect their brands in Australia, with both companies owning domain names and trademarking their brands locally. However as more time passes the less likely it seems that the US giants will launch in Australia given the moves by Australia’s free-to-air networks to play in the streaming space, along with the likes of FOXTEL (which recently launched Presto and also have their FOXTEL Play offering).

There have been reports in the Australian media that Netflix may have between 50,000 and 200,000 subscribers in Australia market, despite not having an official local presence. The Australian reported in March that concern exists among local TV networks about the growing impact of the US company flouting international regulations by accepting payments from Australian credit cards, despite maintaining a geo-block that is easily bypassed by VPN manipulation or spoof IP addresses. It seems that to counter this Australia’s free-to-air players are taking steps to actively play in the streaming space.

Nine Entertainment Co in its interim results briefing said that it was deepening its integration between its TV and digital businesses. It confirmed that plans were are on foot to launch a subscription video on-demand service currently known as Streamco. Director of Sales, Mi9 Media, Emma-Jayne Owens, said:

“Our foundation continues to be built on one of the most comprehensive inventories of data with 14.2 million Microsoft ID customers, allowing us to focus on delivering deep insight and accountability to our clients.  This approach, coupled with our investment into the expansion of amazing second-screen experiences through Jump-in, and the unprecedented integration we are set to deliver for clients through major event programming with Nine, uniquely positions us to be the digital partner of choice into 2014.”

According to the Australian, investors have been told that the Streamco service will target 400,000-500,000 users, but the target could be revised if Nine strikes an agreement with free-to-air rivals Seven and Ten. This seems unlikely. For example Ten, over the past few months, has built a strong presence online with tenplay which recorded 116,000 video views during its coverage of the 2014 Rolex Australian Formula 1 Grand Prix. Also, Seven’s Plus7 recently celebrated its 4th birthday and in January achieved over 7 million long and short form video streams. It has been growing rapidly recently with Home and Away achieving over one million full episode video streams. The Plus7 app, which launched in August last year, has now had over 780,000 downloads.

Given the commitment that each FTA network to their own online brands (along with the ABC with iView and SBS’s with its on-demand service), any tie-up between the free-to-air networks and Hulu or Netflix seems unlikely. Especially as user numbers for each network’s in-house streaming services continue to grow. Further FOXTEL’s recent launch of Presto seems to be aimed at it establishing a strong presence in the streaming space before the anticipated arrival of Netflix or Hulu.

The only saving grace for Hulu and Netflix, should they still have plans to launch in the Australian market, is that the free-to-air networks seem to be moving away from the studio deals they have had in the past with the likes of Warner Bros, Sony and NBCUniversal etc. Nine and Seven have recently let lapse studio deals with Sony and NBCUniversal, respectively. If Hulu and Netflix can launch in Australia with a competitive price offering and substantial content from the US Studios, plus compelling in-house content, they may be able to grow market-share in what is otherwise looking like an increasingly congested local catch-up/streaming market.

The Hulu Japan experience with the US-parent reverting to a brand and technology licensing deal (similar to Virgin’s strategy of licensing its brand) but not retaining ownership in the local company shows us that the mood for international expansion does not seem to be on the cards among the US market-leaders. The current preferred strategy seems to be to enter brand and technology licensing deals, rather than risking capital costs in establishing the brand in a new market.

While the Australian networks seem fixated on growing their own streaming products, they have worked together on marketing ventures such as Freeview, which saw the rapid expansion of digital free-to-air TV after a very slow initial take-up. The best strategy for free-to-air networks to protect their market position and to grown their digital business against competition from the likes of FOXTEL and Quickflix, may be to combine forces for a subscription/ad-funded service which leverages the Hulu or Netflix brand and technology. Hulu is jointly owned by the major US broadcast networks, which shows traditional competitors can work together in the digital space.  Even if the free-to-airs did become partners for a local Hulu or Netflix operation, this does not mean they have to cease their current in-house offering, it just means there is another avenue where revenue can be generated.

If Hulu or Netflix do not act now (whether on their own or with local partners) they risk losing the opportunity to cement a position in the Australian digital streaming space. While Australia is a relatively small market, it has a high uptake of digital services and the plethora of music streaming services and the large rates of piracy of US TV content (e.g. TorrentFreak reported this week that Australia had the highest per capita piracy rates worldwide for the premiere episode of the latest Game of Thrones season) shows that the Australian market while small is the perfect location where Hulu or Netflix can grow their businesses as consumers are crying out for a one-stop shop streaming service.


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