Australia
Contributed by Ramon Lobato (RMIT) and Alexa Scarlata (University of Melbourne)
Updated August 2017
Key Takeaways:
SVOD take-up in Australia was swift and significant, with Netflix the clear favourite. Industry estimates suggest 1 in 3 Australians now use Netflix.
While Australian viewers initially regarded Netflix as a “breath of fresh air” in the country’s small and risk-averse television industry, there is now intense scrutiny of and frustration with the local catalog, which is seen to compare unfavourably to the US version.
Netflix has invested in several Australian co-productions and recently announced its first local original series, Tidelands. However, local SVOD competitor Stan has led the way in producing exclusive Australian SVOD content.
Netflix figures prominently in Australian policy debates. Media ownership laws and Australian content rules are now being reviewed, partly in response to Netflix’s entry into the market.
Market
Netflix came late to Australia, launching in March 2015. Its arrival was keenly anticipated. Many Australians were already familiar with the brand, having followed the Netflix story from afar. In fact, by 2014 thousands of Australians were already using VPNs and proxies to access the U.S. service, reflecting the unofficial Netflix culture that existed here years before it was officially available. For this reason, Netflix undertook little local marketing or advertising for its Australian launch, relying on already-existing brand awareness and word of mouth to spread the news of its arrival.
Australia, with a population of 25 million, is a small media market. This places a natural limit on the number of digital media services that can compete, and the market has seen significant shake-out since the arrival of Netflix. In the SVOD space, Netflix’s main competitors are Stan, Amazon Prime and the monopoly pay-TV provider Foxtel, which now offers its own ‘skinny’ OTT service.
Stan – a joint venture between local free-to-air broadcaster, Nine, and newspaper/digital media company, Fairfax – launched a month before Netflix. It is now the country’s second most successful SVOD. Though Telsyte has estimated that Stan’s subscriptions have not yet exceeded one million, the Australian-owned SVOD expects to turn a profit by early 2018. Stan’s dual focus on licensing a substantial catalogue of international, well-known serialized TV, and investing in local content production for exclusive distribution on the platform has seen it achieve a free-trial to active-subscriber conversion rate of 75%. Stan has commissioned a number of Australian-made original programs, including the police comedy No Activity, which has since been licensed as a format by CBS All Access and Will Ferrell’s production company Gary Sanchez Productions. In July 2017, Stan also announced a shift towards theatrical releases that mimics Netflix’s move into original film. Stan’s first full-length feature – psychological thriller The Second – will be the first film to be released concurrently in cinemas and on an SVOD platform in Australia.
Amazon Prime Video launched quietly in Australia in December 2016, but its limited library means that it is yet to establish itself as a significant SVOD contender. This may change as Amazon’s e-commerce business, which has so far not had a physical presence in Australia (Australians order from the US site instead), prepares to launch a fully-fledged Amazon Prime service here in 2018, with local distribution, warehouses and fulfilment. Given that bundled streaming services are provided for ‘free’ to Prime subscribers in the UK and US, it seems likely that Amazon will ramp up its presence in the Australian video market soon.
Foxtel, which is part-owned by News Corp, has experimented with SVOD but is wary of cannibalizing its main pay-TV business. Foxtel previously had a share in local SVOD Presto, which shuttered in January 2017 after poor-take up. It has since revamped its skinny SVOD offering Foxtel Play, re-launching it as Foxtel Now. Foxtel Now is currently the only SVOD player in the Australian market that combines on-demand content with live sport, news and television. Foxtel also has an ongoing partnership with HBO.
The national public broadcasters ABC (Australian Broadcasting Corporation) and SBS (Special Broadcasting Service) also offer competitive catch-up and AVOD services respectively. ABC’s iView, launched in 2008, was the first VOD and catch-up service in Australia. The ABC has used the platform to experiment significantly with form, talent and release windows, attract audiences via social media engagement, and extend the focus of the national broadcaster from broadcast ratings to a la carte viewing. SBS’s OnDemand has funneled its advertising profits into the acquisition of prestige international content in an attempt to establish itself as Australia’s “most distinctive streaming service”, as a “free Netflix”.
At the time of writing monthly costs start at A$9 for Netflix AU, A$10 for Stan, and A$26 for the basic Foxtel package. Netflix’s arrival has placed downward pressure on prices generally; Foxtel has been continually slashing its entry price (packages) to avoid churn to the cheaper SVOD platforms. According to Deloitte, many Australian consumers doubled up on SVOD as a result, with 32% of subscribers subscribing to multiple services as of March 2017. However, prices are increasing slightly with the expansion of the federal Goods and Services Tax (GST) (10%) to digital products from 1 July 2017. Netflix and Stan both used the colloquially dubbed “Netflix tax” hike to slip in an extra 10% price rise, much to the chagrin of Australian subscribers. Foxtel, by comparison, announced a strategic shift in June 2017, unveiling packages as low as $10 per month and a $900 million investment in content.
Commercial free-to-air TV remains a strong force in Australia, even if its share of the pie is diminishing. Almost 20 million Australians (83.7%) watch some broadcast TV each week. According to Roy Morgan, while Australians now spend more time using the internet during the week than watching television, when it comes to entertainment at home, TV is still the preferred pastime by far in the average Australian household. Time spent watching television appears to have steadied over the last few years, suggesting Australians may be approaching a ‘base’ level of habitual TV viewership, that takes into account an increase in multi-screening. Similarly, while Australian kids aged six to 13 spend more time using the internet than watching television (12 hours compared to 10 hours), at home they still spend more time watching TV. Finally, Roy Morgan data from 2016 found that while Netflix’s take-up has increased exponentially since its arrival, over two in five subscribers streamed less than three hours of content during an average week – including 26% who watched only a few hours per week, and another 16% who didn’t watch any at all. So, while Netflix is undeniably winning Australian hearts and minds — especially among younger viewers — linear TV still occupies a disproportionate amount of leisure time overall.
Clearly, Australian TV networks retain significant market power and political influence within this small country. While local-content quotas mean the networks are still (for now) required to invest in Australian-made dramas and comedies, their future is increasingly bound up with sports, news, and reality TV genres. One effect of this is a noticeable fragmentation of TV audiences and genres. Broadcast is becoming more dependent on live broadcasts and TV events. Meanwhile, fans of serious drama and comedy now turn to Netflix, and to the public broadcasters ABC and SBS.
Regulation
Australian regulatory standards are liberal when it comes to media classification and censorship, so the appearance of Netflix has not raised controversy on this front. Official media classification procedures are also being adjusted to accommodate Netflix. In late 2016 the federal government announced a 12-month pilot self-classification system designed especially for Netflix. Netflix is allowed to classify its own content, with the Classification Board checking a sample to ensure accuracy and integrity.
Local content is more of a concern for policymakers. Netflix, as an internet-delivered service, avoids the local-content quotas that apply to broadcasters (55% of TV content aired between 6am and midnight must be locally produced). As such, Netflix is seen to have an unfair commercial advantage over local incumbents, who complain bitterly that Netflix does not “tell Australian stories on screen” (a cultural policy objective which still drives much Australian media regulation).
Since its launch in Australia, Netflix has invested in and distributed several local co-productions, including Glitch, White Rabbit Project, and the upcoming Legend of Monkey. It recently announced its first local original series, Tidelands, a crime drama set in Queensland. However, with only about 2% of the Netflix Australia catalogue consisting of locally produced content, the spectre of cultural imperialism remains alive in media policy discussions. Industry groups like Screen Producers Australia have long campaigned for EU-style Australian content quotas on OTT services.
While there has been much public debate about this topic, there are no easy solutions. The US-Australia Free Trade Agreement of 2004 forbids introduction of local content quotas on digital media services, so Netflix cannot easily be obliged to invest in Australian production. As such, attention has instead turned to media policy reform that may provide relief for highly regulated broadcasters. In June 2017 the federal government abolished $127 million in broadcast licence fees for 2016/17, while a Media Reform package – which aims to remove arguably “outdated” media ownership laws – is currently being considered.
Finally, the arrival of Netflix has been significant for Australian internet policy debates. The country’s creaking internet infrastructure, already notoriously slow and mostly reliant on copper wires rather than fibre-optic cable, has struggled to keep up with the surge of demand. Jokes that Netflix would “break the internet” in Australia were commonplace around the time of the launch. Some ISPs were in fact intermittently overloaded, leading to connection problems and low resolution playback. While complaints have eased since the launch, capacity problems and slow internet speeds remain a hallmark of Australian internet infrastructure, and thus the Netflix experience.
Viewing Habits
Australians use a wide variety of devices to watch Netflix, with an average of 6.2 screens in each home. In the living room, consumers increasingly favour large-screen internet-connected TVs. Research by ratings agency Oztam suggests more than two-thirds of households have a “smart” or “hybrid” TV, which typically have Netflix apps built in (along with those of the local TV networks, Stan, YouTube, and other services). Use of iPads and tablets to watch TV is also widespread. Fifty per cent of Australians now own a tablet. Smartphones (ubiquitous in Australia) are also commonly used to watch Netflix, especially among younger viewers. Use of Google Cast, Apple TV, Roku and other similar devices is less common in Australian households.
Internet Pricing and Availability
The vast majority of Australian households have internet access at home, and most mobile users also have mobile data plans. However, internet access in Australia is relatively expensive, with a typical household broadband plan (100 gigabytes/month) costing around A$80 per month.
There is no tradition of unmetered internet in Australia as there is in the U.S. and other markets. Household internet access is sold in Australia on a quota basis, with subscribers choosing from tiered packages of between 50 and 1000 gigabytes per month. Mobile data plans offer anywhere from 500 megabytes to a few gigabytes per month. While large-capacity quotas of up to 1000 gigabytes and are now available, rendering the distinction academic, Australian internet users in general tend to be anxious about their data usage, especially on mobile where “bill shock” is a big issue. Some ISPs started offering their subscribers unmetered access to Netflix when it first launched. However these deals were said to result in internet congestion around the country, especially during the “new prime time” between 9pm and midnight, and were quickly withdrawn.
Content
The size of the Australian catalogue in March 2015, shortly after the local launch, was around 1326 titles (compared to more than 5000 in the US Netflix catalogue). This included approximately 65 Australian films and television shows.
The Australian Netflix catalog has grown substantially since then, and as of August 2017 it comprises 3902 titles (compared to 5498 in the US service). Of these, 107 titles are Australian movies and TV series. As these figures suggest, the level of Australian content on Netflix is very low — although it should be noted that many more Australian movies and TV shows can be found in other countries’ Netflix catalogs.
Consumer appetite for more local content on Netflix is unclear, and as yet untested. However, the size disparity between the US catalogue and the local catalogue is regularly noted by users.
Consumers and Press Reaction
Australian users are generally enthusiastic about the service, the interface, and the overall experience of Netflix. The arrival of Netflix was welcomed by most commentators as a “breath of fresh air” in an otherwise small and less-than-innovative local TV landscape. The price point is perceived as reasonable for the offering, and compares favourably to the cost of pay-TV.
However, now that Australians finally “have” Netflix they are starting to get more critical of the service, especially the catalogue. Critiques of the Netflix Australia catalog as being small, full of reruns, and inferior to the US version are widely voiced, despite the steady growth of the local catalog. The local service Stan is seen as a having a better selection of local content. It should be noted however that for many Netflix users the lack of local content is not an issue at all: they prefer the Netflix experience precisely because of its American-ness.
Overall, despite some churn and complaint among the Australian user base, the level of enthusiasm for Netflix remains very high.
Subscriber Estimates
Netflix does not reveal local subscriber numbers. However all accounts suggest that Netflix was immediately and remains the most popular SVOD platform in the country. Local market research company Roy Morgan recently claimed that 7.1 million Australians – that is, 1 in 3 – now have access to a Netflix subscription. While technology analyst firm Telsyte has much more conservatively estimated that this availability equates to just over two million discrete Netflix subscriptions, the speed with which SVOD platforms have been embraced is astounding. According to Deloitte, in 2017 SVOD take-up (32%) surpassed that of pay-TV subscriptions (31%). Pay-TV subscription ownership, which has been available in Australia since 1995, has languished between 31-33% since 2014 and never significantly exceeded this percentage. It took SVOD only two years to reach the same level of penetration. Netflix is responsible in large part for this success.
Official revenue figures for Netflix’s Australian operation are similarly unavailable. However the Australian Bureau of Statistics notes that the total income for subscription services and channel providers — which includes SVODs — is now pulling ahead of broadcast for the first time after Netflix’s first year of operation in Australia. Subscription services now attract A$5.3 billion in revenues, compared to A$4 billion for broadcasters.
Local Offices
Netflix has no physical presence or staff in Australia. Programming is managed from the company’s Los Angeles office.