In a major announcement this week, Netflix, the American provider of on-demand internet streaming and DVD media, announced expansion of operations in over 190 countries, including Indonesia. Enjoyed by over 70 million viewers across the globe, Netflix can be subscribed to by customers in Indonesia for a monthly fee starting IDR109, 000 for a basic package, providing access to unlimited movies and TV shows, on any device, from smartphones, tablets, gaming consoles to smart TVs.
Netflix and its counterparts are often seen as disruptive forces in the entertainment industry, fuelling one of the most talked-about global media trends – that of declining TV viewership, especially among millennial consumers. In view of advancing technology and rising connectivity, consumers’ media habits have dramatically evolved, especially in terms of how they access traditional home entertainment media, including Print, TV, and Radio. The rise of streaming services platforms like Netflix, Amazon TV, and Hulu in the US has also given birth to the ‘cord-cutting’ phenomenon, whereby viewers cancel their cable TV subscriptions. The so-called ‘second screen’ further diverts attention, making it trickier for marketers to make the most of consumers’ shortening attention spans on TV, especially considering the huge ad dollars spent on these media.
While Netflix may be a front runner, competition in this space is likely to heat up. Can the cord-cutting phenomenon eventually surface in Indonesia as well? It may be too early to predict but in Indonesia, for now, TV continues to be a hugely popular media. And by TV, we don’t quite refer to cable TV, but the Free-to-Air (FTA) TV. Data from BPS (Indonesia Statistics Agency) shows that 91.55% of Indonesia’s population over 10 years watched television over the past week, based on 2012 estimates.
Despite the rising internet connectivity and social media frenzy among youth, our survey shows that TV is the most frequently accessed medium. Based on MarkPlus Insight Youth Survey 2015, TV was rated as the most frequently accessed media over the past year by 74.5% of the youth, compared to 21% of youth for internet (see figure 1). The survey covered 18 cities across Indonesia (including Jabodetabek) and included 6,798 respondents aged between 15 and 34 years.
Source: MarkPlus Insight Youth Survey 2015, n=6,798
Another observation from the survey was the dominance of free-to-air (FTA) television channels, potentially due to their coverage. Based on respondents’ inputs, RCTI, SCTV, and Trans TV are the most viewed national channels (see figure 2). On the contrary, cable TV still has limited coverage, mostly in big cities and though subscribers are rising, majority of viewers continue to stick to FTA channels for the variety of content.
Source: MarkPlus Insight Youth Survey 2015, n=6,798
The MNC Group, which owns three of the top ten most viewed channels based on the survey, is also the most dominant player in the TV Advertising revenue market in Indonesia, worth IDR72.5 trillion in 2015. According to a recent report, MNC Group, which owns RCTI, Global TV, and MNC TV, had booked a total revenue of IDR 25 trillion from advertising alone, with RCTI dominating with a monthly income of IDR 900 billion.
The overall TV advertising revenue in 2015 has declined, but mainly due to more cautious spending by ad companies in the wake of economic slowdown. Some estimates project that globally, digital ad revenues may surpass TV ad revenues as early as 2020, though it is likely that in countries such as Indonesia, despite the fast growth in digital ad spend, TV would remain the most prominent media in terms of ad revenues.
The Crowded Pay TV Market
The thriving TV industry in Indonesia is also evident from rising competition in the Pay TV industry. Currently at a niche stage, pay TV or cable operators are expanding in number and also witnessing strong growth in subscribers. In fact, the pay TV industry has suffered lowering ARPUs because of too much competition, forcing some operators to request the government to limit licencing to newer players. As of January 2015, there were 17 big pay TV operators in Indonesia.
According to MarkPlus Insight Youth Women Netizen Survey, pay TV ownership in Indonesia is the highest among netizens. Netizens are those aged above 15 years who access internet for more than 3 hours every day. One reason could be because netizens actively use internet to access news, gossip, entertainment, and watch videos, potentially getting more exposed to global content, such as international movies, TV series, and reality shows and sporting events.
Netflix – Challenges Ahead
The launch of Netflix will certainly introduce new competition for pay TV operators in Indonesia. Starting at a little over IDR100,000, Netflix packages appear quite affordable for a large section of potential pay TV customers. Even the premium service at IDR169,000 costs lower than a typical Pay TV monthly subscription, enabling customers to stream ultra HD content on Netflix across 4 devices at the same time.
A couple of challenges however remain for Netflix to iron out. First is the payment method, which currently is only by credit card. In Indonesia, e-payment adoption is quite low, though it is likely that a large portion of Netflix’ target segment would use credit cards. Further, the internet speed in Indonesia is among the slowest in ASEAN. Based on speed test data, average internet download speed in Indonesia as of May 2015 was at 6.73 Mbps, ranked 139th in the world. Another test result showed Indonesia’s average internet speed was 3 Mbps, far slower than Thailand (8.2 Mbps), Sri Lanka (5.1 Mbps) and Malaysia (4.9 Mbps). According to Netflix, internet should be at least 3 Mbps for SD quality movies and 25 Mbps for ultra HD content. Further, even as it is available on multiple devices for download, to access Netflix on TV, it should be a smart TV, whose penetration in Indonesia is low as well.