Netflix back in the cash with 36% revenue growth

Last time Netflix reported its quarterly financials it disappointed investors. Three months later its back to its blistering best with revenues of $3.9 billion.

The year-on-year growth of 36% represents a strong quarter for the streaming giant, capturing 6.9 million additional subscriptions, the vast majority of which came from international markets. Net income stood at a healthy $403 million, compared to $130 million in the same period of 2017.

“Overall, this was a strong quarter for the company,” said independent analyst Paolo Pescatore. “Normal service has been restored.

“This was a key quarter for the company following the challenges of the prior one which was a one off and largely down to seasonality. More importantly strong growth in its overseas market is encouraging.”

Back in Amsterdam during this year’s IBC, the international markets were highlighted as critical to Netflix’s continued growth. This is not to say the US market has hit a glass ceiling, but with the current penetration (58 million subscribers) and intense competition for attention, this is not a market Netflix can use to continue the momentum investors have become accustomed to. For Maria Ferreras, VP of EMEA Business Development at Netflix, new markets, new content and new partnerships are key.

On the content side of things, the localisation strategy will have to be accelerated. Creating local content, using local production companies and journalists, is key for engagement, though with new rules in the European Union, the focus will have to be razor-sharp. The new rules will eventually require subscription streaming services to devote a minimum of 30% of their catalogue to European works, while some member states will force Netflix to reinvest the revenues realized in those markets back into local production. This is generally the Netflix strategy, though it might have to accelerate timelines.

In terms of localisation, this is not just on the content side; partnerships with regionalised pay TV providers, ISPs and mobile operators will continue to play a more prominent role. Such partnerships offer a faster route to the customer than organic marketing can, and there are already dozens of examples around the world. Examples from this quarter include the first mobile bundle in Japan with KDDI and an expanded partnership with Verizon to pre-install the Netflix app on Android phones.

“All of its rivals are now making huge bets on video and it cannot afford to be left behind,” said Pescatore. “It now needs to rely more than ever on its extensive cable and telco relationships.”

For the next quarter, Netflix is again expecting good things. Revenues are expected to grow 26% to roughly $4.2 billion, with the team targeting an additional 9.4 million subscriptions. The international markets will be the primary generator of this growth, expected to add an additional 7.6 million subscriptions, though only growing revenues by 10%. With offers and partnerships playing a strong role in creating this momentum, lower revenue growth is to be expected.

Netflix is the premier streaming service worldwide and it doesn’t look like it is going to lose that position anytime soon. Amazon’s own content business is making progress as well, while Disney is bound to offer some resistance, but Netflix is still dominant. New partnerships in the international markets and an increased focus on regionalised content will only add to the momentum. 26% growth over the next three months is a big ask, but the signs are all positive.

AT&T will launch Netflix competitor next year

In an SEC filing, AT&T has confirmed it will launch a new streaming service focused around HBO content to challenge the dominance of Netflix and Amazon Prime.

While details are relatively thin for the moment, though AT&T Entertainment boss John Stankey formally announced the new offering at the Vanity Fair New Establishment Summit in Los Angeles confirming the Time Warner assets would form the foundation of the streaming platform, with some third-party content building out the breadth and depth.

“On October 10, 2018, we announced plans to launch a new direct-to-consumer (D2C) streaming service in the fourth quarter of 2019,” the SEC filing states.

“This is another benefit of the AT&T/Time Warner merger, and we are committed to launching a compelling and competitive product that will serve as a complement to our existing businesses and help us to expand our reach by offering a new choice for entertainment with the WarnerMedia collection of films, television series, libraries, documentaries and animation loved by consumers around the world. We expect to create such a compelling product that it will help distributors increase consumer penetration of their current packages and help us successfully reach more customers.”

HBO, Turner and Warner Bros content will create an interesting proposition, though this of course relies on a successful merger with Time Warner. As it stands, District Court for the District of Columbia Judge Richard Leon has given the green light for the deal, though the Department of Justice is appealing the decision, suggesting Judge Leon did not appropriately consider the implications of the merger. It looks to be a done deal, though the DoJ is being as awkward as possible.

The question which remains is whether the Time Warner content will be enough, even with its library of titles and additional third-party content. Netflix and Amazon Prime are surging ahead of the competition in terms of subscriptions, 130 million and 100 million respectively, though Disney’s new streaming service could be an interesting offer with the 21st Century Fox programming assets. Hulu might not be on the same scale as these three, but with 20 million subscribers it is certainly a platform worth considering. AT&T is entering a very competitive market.

What this does also offer AT&T is potential entry to the international content market. This is where Netflix is targeting future growth, suggesting at IBC 2018 competitiveness in the US market won’t bring the growth figures investors consider appropriate.

The Time Warner acquisition has been one of the biggest talking points of the industry for the last 18 months, though one of the big questions is whether AT&T can effectively manage a business in such a different vertical. The traditional telco approach to risk and expansion will not work here, for this venture to be a success AT&T will have to be a lot more aggressive and embrace the concept of the fail-fast business model.

With the cards now laid out on the table, it won’t be long before we find out whether AT&T has the capability to effectively diversify outside of the traditional telco battlefield.

World Cup: Understanding is the key to avoid scoring own goals

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Derek Canfield, General Manager, Business Analytics at Teoco talks about the network challenges associated with major sporting events like the World Cup.

Imagine the scene. It’s the World Cup final and 80,000 people in Moscow’s Luzhniki stadium are craning their necks from the seats to watch a referee look at his small video screen beside the pitch. Meanwhile a worldwide TV audience expected to top one billion people will not only see the replays themselves, they’ll have experts and former referees explaining what is happening to them.

This situation is common for the American sports fan. The lead official at an NFL game can often be seen going under the hood to review on a private screen a tight call in a game that has countless interpretations available. And while the crowd boos or cheers the big screen replays, the audience at home get a detailed explanation from an ex-official or rules expert on the situation unfolding and the possible verdicts.

But is it right that the paying audience in the stadium, often including the most passionate fans, is left a little in the dark, so to speak? Of course not, and thus we see a good number of them will have their smartphones out trying to track what’s happening, and get the inside scoop on the likely decision moments before it is revealed. In fact, our digital world is intended to give the passionate fans the best of both worlds: the energy and of the live event, enriched by readily available content and analysis on their respective devices.

However, unless the stadium’s communications capacity is being actively managed and flexed to allow the live audience to keep track of developments on their mobiles, it is possible and even likely the stadium will score a network own goal and leave its audience frustrated.

Simply cranking up the network capacity is only part of the solution. To really improve things for the fans on site, operators need a much better understanding of what the spectators in the stadium are actually doing. This involves tracking the apps they are using, the feeds they are watching, and understanding all of the services they are trying to access. Without access to that level and granularity of data, it will be almost impossible for the stadium service provider to really improve the quality of service being provided.

Unfortunately, the challenge in those circumstances is that the majority of the data traffic in the stadium will be encrypted. In fact, Gartner has predicted that by next year as much as 80 per cent of all web data traffic will be encrypted. So how can the operators know what’s going on, if they can’t actually see the services being used?

With advanced analytics solutions, operators have found it is possible to gain actionable insights and make their massive event preparations run smoothly on the big day. By applying machine learning and heuristics together with our real-time digital analytics to the problem operators get deeper visibility into the big blind spot of encrypted data traffic to extract the metrics. Armed with this intelligence, they can make adjustments to the network and service without compromising data security and privacy.

Machine learning is used to provide sufficient visibility of the encrypted data and the traffic flow so that the network can effectively ‘self-identify’ the application service being used, for example streaming video on demand from specific sports app playing in HD resolution. Armed with that knowledge, the operator can then apply modelling to understand how it should adjust the network to deliver the best experience.

At this year’s Super Bowl in Minneapolis we worked with the stadium network operator to provide real-time analysis of stadium upload and download network traffic. At any point during the game the operators could see a full picture with subscriber-level granularity on numerous items. Some examples include top ten apps services being used, the balance between HD and standard definition in terms of video streaming, how much content people were uploading, and what average data speed was being achieved.

With spectators messaging friends, capturing videos and pictures of themselves or the players to upload to Twitter or searching for feeds showing highlights and replays; it’s vital to track all that network activity in real time. As well as maximising network performance, it becomes possible to detect any part of the stadium with connectivity issues, or even highlight a rogue user consuming a vast amount of data by trying to live stream the whole match.

At the World Cup, the service providers will also be dealing with roaming subscribers from all over the world, many of whom will only wish to use free operator stadium Wi-Fi. Without that full network traffic visibility in near-real time, managing the service to deliver a quality experience will be all but impossible.

But here’s the thing – spectators at an event have an increasing appetite for internet services and content. They represent a captive audience whose interests have been defined by their very presence in the venue – making them prime targets for special offers, promotions and add-on services. Those operators able to track ‘what’s going on’ within the network in real time, will not only provide the best customer service, they will also have the best knowledge of customer behavior to sell additional airtime and game-related services.

By enabling users to do what they love to do, when and where they want to do it, operators have the ability to enrich life’s experiences. And in doing so, operators have the ability to create additional content services opening up new revenue opportunities. Keeping the activities and priorities in sync is fundamental for the operator to score profits while players on the field vie to score goals.

 

Derek Canfield - TEOCODerek Canfield is the General Manager responsible for Business Analytics at Teoco. He is a veteran of the telecom industry, having spent the first half of his twenty-year career working for a North American operator and the second half with Teoco. At Teoco, Derek leads the go-to market strategy for the analytics suite of products and services focusing on that key tenant of aligning technology with business objectives to drive innovation and market leadership.

Streaming approaches half of all music industry revenues

It might not be anywhere as near as data intensive as video, but the growing influence of music streaming is another part of the network congestion question which needs to be factored in.

During the days of yesteryear, queues would form around the corner for the latest release of the next chart topper, but gone are those days. Those of more advanced years might look badly nostalgically about the anticipation of getting their hands on the latest Beatles banger (Ask Scott, Ray or Iain for more details), but now gratification is all about a simple click on the mouse.

Music is an aspect of the digital economy which is rarely discussed from a telco perspective, but it will start to have an impact before too long. Video is of course the big headache when it comes to traffic management and network congestion, but there are so many more moving cogs which collectively will have an impact; that is important to remember about them every now and then.

According to findings from MIDiA Research, music streaming is fuelling growth in the $17.4 billion global music industry, with a 39% year-on-year uplift in revenues to now represent 43% of the total revenues across the industry. An increase in revenues is the most obvious way to measure usage in the industry, but when popular streaming services like Spotify offer ‘all you can eat’ music, revenues do not perhaps tell the entire story.

Looking at the bitrates used by some of the more popular services, Apple Music uses a 256 kbps bitrate, which suggest an hour of music streaming would eat up 115 MB, while other apps use multiple options. Google’s music offering has three categories; the bitrate on low ranges from 96 kbps to 128 kbps, medium is 256 kbps and high is 320 kbps. On low quality you could use between 43 MB and 58 MB in an hour, while on high it would be 144 MB. On Spotify, the default mobile bitrate is 96 kbps and for desktop is 160 kbps, while users have the option of using 320 kbps.

In terms of users, Sportify now has at least 71 million subscribers (as of December 2017) and 157 active users worldwide. Apple has said it has 36 million subscribers, while Google has around 7 million (2017), including its YouTube subscriptions. These are not mind blowing numbers, but growth is continuing to be very healthy.

Over the course of 2017, users in the US spend more than 32 hours a week listening to music, up from 26.6 hours according to Nielsen Music research, with on-demand streaming up 12.5% year-on-year. This might not sound massive but streaming music has been normalised for years. The accelerated growth you usually see at the beginning was a long time ago, though 12.5% is still a significant number to bear in mind. These numbers will have a notable impact on the information highway.

Video is continuing to grow, but less data intensive trends are continuing to play a role in the connected era. Music streaming might not be a game changer when it comes to network congestion, but when you add up all the minor impacts of music, gaming, navigation, messaging etc. the headaches start to become a bit more varied. Always worth noting every now and then.

Telcos didn’t predict HD video uptake hitting 38% – Openwave Mobility

New research from Openwave Mobility claims the stress on mobile networks around the world can be put down to user uptake of HD video, which now stands at 38%.

Openwave Mobility didn’t go as far as to say telcos are not prepared for such uptake, but it is a logical conclusion. If telcos didn’t anticipate it, and are now experiencing bottlenecks on the network, preparation was lacking.

The research is based on live deployments at 30 mobile operators around the globe from 2013 to 2017. HD video only represented 5.7% of video traffic four years ago, though this number has swelled to 38%, with the team expecting this trend to continue upwards to 50% by the end of 2018. This has been pinned down to the popularity of OTT streaming services such as YouTube and Netflix on mobile devices.

“OTTs have launched a land grab,” said John Giere, CEO of Openwave Mobility. “In 3 years OTTs wiped out voice revenues. In 2.5 years they wiped out messaging revenues. Is mobile data next? You bet. Along with encryption obscuring mobile networks, operators have to grapple with the unstoppable appetite for HD video content from OTT players.”

It is a story which we have become very familiar with over the last couple of years. The telcos pay for the infrastructure, only to collect the crumbs as the insatiable appetite for data continues to grow. The OTTs are only encouraging this gobble of data, while simultaneously offering free services which wipe out the cash cows of the telcos. It’s a trend which will have a lifetime, but the end doesn’t seem to be in sight for the moment. The OTTs seem happy to continue biting the hand that feeds them.

Telcos have continually been frustrated by trends, and you have to have some sympathy for them. Admittedly they were slow off the line and never got ahead of consumer trends, but the commoditization of data is essentially ‘death by a thousand cuts’.

Perhaps the most frustrating aspect of this report is the need for HD video. We understand it will produce a better resolution, but considering the size of the screen on most mobile devices, you have to question whether the benefit outweighs the increased data demands (or whether there is any notable benefit to start with). This is one instance where data throttling might be considered appropriate.

Another area of frustration for the telcos is increased volume of encrypted data. There are of course security and privacy benefits to encryption, but from an experience perspective, how can the telcos improve something which they are not aware of.

“Facing an onslaught from OTT encrypted traffic, the challenge for operators is – how can you manage what you can’t see?” said Giere.

Users are becoming less and less tolerant of buffering, though telcos are seemingly unable to do anything at the moment. The research claims 75% of all mobile traffic is now encrypted, stifling the mobile operator’s ability to maintain subscriber Quality of Experience, as encryption protocols prevent operators from being able to profile or optimize data using conventional traffic management tools.

Most of the time we are perfectly happy to point the finger at the telcos and say they are not spending/being adventurous/thinking long-term enough, but this is an area where you have to have a bit of sympathy. It is questionable whether HD is necessary, and they can’t even do anything to optimize it.

Vodafone has a surprisingly good go at tariff innovation

UK operator Vodafone has come up with a couple of new tariff ideas that, for once, look like they actually add some value to the consumer.

We’ve come to the expect the mobile industry to gratuitously dick about with its tariffs every now and then, apparently just to show it hasn’t completely given up on innovation. But usually the tweaks are so superficial and inconsequential to the end-user that we wonder why they bother. A couple of Vodafone’s bright ideas, however, seem to have some genuine merit.

For postpaid punters we now have ‘Vodafone Passes’, which allow you to pay extra for unlimited data on certain apps – effectively zero-rating them for a flat fee. Here’s the full range:

  • Chat Pass (£3/month) – Facebook Messenger, WhatsApp and Viber
  • Social Pass (£5/month) – Facebook, Instagram, Pinterest and Twitter
  • Music Pass (£5/month) – Spotify, TIDAL, Deezer, Napster, SoundCloud, Amazon Music Unlimited and Prime Music
  • Video Pass (£7/month) – Netflix, Amazon Prime Video, DisneyLife, Vevo, My5, YouTube, UKTV Play and TVPlayer, which includes channels like HISTORY, Lifetime, MTV & Comedy Central
  • Combo Pass (£15/month) – all four Passes in one

By far the most useful of these is the video one, especially if you can also use it via tethering in a tablet or whatever – which Vodafone has confirmed you can. The chat one is pretty useless for nearly everyone as IM uses so little data, and you can mostly say the same for social media. But we can imagine why people would pay extra to use Spotify on their phone without inhibition and that applies even more so to Netflix, etc.

Having commended Vodafone for innovating it should be noted that it’s far from the first UK operator to try this sort of thing. Three zero-rated a few streaming services in its ‘Go Binge’ tariff earlier this year, which itself seemed to copy T-Mobile US. And Virgin Media got the ball rolling over here last year by zero-rating some social media. But Vodafone seems to have a lot more apps available for zero-rating, something it’s stressing in its marketing.

The other bright idea is something called ‘Pay as you go 1’. This is a daily prepaid tariff that costs at most a quid, and possibly less. From 10 November you can set yourself up with Vodafone such that if you don’t use your phone at all in a day (presumably this doesn’t include incoming calls/texts) you don’t pay anything. You’re then charged 20p per minute for calls, 20p per text and 20p for 5MB of data until you hit a quid (i.e. almost immediately).

After you hit the £1 threshold you get unlimited minutes and texts as well as 500 MB of data for the rest of the day. The sub-£1 increments seem a bit pointless but the subsequent allowances seem generous and the flexibility to leave the phone in a drawer for days without it costing you anything will probably appeal to some.

Nick Jeffery, Vodafone UK CEO, said: “We want our customers to be able to use their phones exactly as they want to,” said Nick Jeffery, Vodafone UK CEO. “With Vodafone Passes, they can keep in touch, keep tuned in and keep watching without having to keep an eye on their data meter. With Pay as you go 1, we’re ripping up the existing Pay as you go rulebook, so that customers can use their phones knowing they won’t pay for what they don’t need, and they’ll never pay more than £1 a day.”

This sort of flexible, ad hoc tariff offering is what everyone has been saying operators need to do to generate fresh revenue streams for ages. Vodafone seems to have nicely augmented both its postpaid and prepaid offering with these new tariffs and it will be interesting to see if the rest follow-suit.

Sky starts Spanish streaming service

Sky has loosened the reigns for potential customers in Spain, offering a month-by-month streaming service for the more cash conscious consumers.

For only €10 a month, following a month free trial, customers will be able to shows like The Walking Dead, Big Bang Theory and Grey’s Anatomy, as well as hundreds of films on demand. The product seems to be designed for those who desire flexibility, and is a bit of a different move considering its business model in other markets.

“Sky’s new service offers customers a great value, no-strings relationship with their favourite shows for just €10 a month,” said David Nuñez, Director of Market Development in Spain.

“With a simple and intuitive solution, whether it’s watching the latest entertainment live or via catch-up, having the choice of the latest TV Series or enjoying hundreds of box office smash hits, this new service offers something for everyone.”

One explanation for the new offer might be Telefónica’s decision to expand the distribution of its Movistar+ pay-TV platform to other European countries. This is very much the Netflix-streaming style model, and if Telefónica can do it why can’t Sky.

For Sky it offers an interesting entry point into new markets, but success will be limited for the moment if it does not start to spray the cash around. Sure, some of the shows which it does have the rights for are popular worldwide, but unless there is a specific content plan in place to more readily engage local customers, it might not be a successful venture.

“For Sky, the launch into Spain makes sense and represents a key stepping stone towards grandeur aspirations of being a pan-European provider of pay TV services,” said Paolo Pescatore of analyst CCS Insight. “It needs more subscribers and Spain has seen an explosion in multi-play as well as online video services over the last couple of years. However, it will need to invest heavily in the long-term to raise its profile and acquire key local premium content rights.

“This new product will provide further disruption to a competitive cut throat market. We expect Sky to forge partnerships with local telcos replicating a proven strategy seen in other markets including Germany, Italy and the UK.”

Perhaps there should be little surprise Sky has made a move to crack new markets. Recent financial results have shown the room for growth is limited in the more established markets, the UK for instance, and at least Spain offers Sky the opportunity to focus on its core competency of content, as opposed to other bets such as the MNVO venture in the UK.

If this launch proves to be a success it could become somewhat of a springboard for a pan-European streaming business model for Sky, though it will have to be ready with the readies. Netflix and Amazon have both shown the streaming model can work, but there is a need to invest big in original and local programming. Whether Sky is prepared to do this remains another matter, but it certainly presents an interesting opportunity for the team.