NZ internet a 'deterrent' to online TV

06:08, Nov 28 2011

Netflix, a popular United States service that lets customers stream movies and television shows over the internet to their TV or computer for a flat US$8.99 monthly fee, has slated the internet in New Zealand and says it has no plans to offer its service here.

The message was delivered in person by the company's vice- president of product innovation, Brent Ayrey, 39, a Kiwi who grew up in Christchurch and was the headline act at the ITEX computer show in Auckland.

Netflix, which also rents DVDs by mail, took the US market by storm after it began streaming mainstream movies and prime TV shows online, notching up more than 24 million subscribers. It now accounts for almost a third of prime-time internet traffic – more than YouTube and peer-to-peer service Bittorrent combined – but there are signs its star may be on the wane.

The company's share price has hit a 20-month low as investors fret about competition and continue to react to a 60 per cent price hike in July that saw an exodus of 800,000 customers.

Netflix' disinterest in New Zealand has been taken as an indictment of the country's internet infrastructure and broadband data caps and Ayrey said it was a "pretty substantial deterrent".

He believed the majority of its US customers were connected to cable networks, which are widespread in the US but are confined in New Zealand to TelstraClear's networks in Wellington and Christchurch. "Cable is a far better internet product in the US than [copper line] DSL. It is much faster and generally better value."

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Netflix has however expanded into Latin America and the Carribean and will launch in Britain next year.

Obtaining licences to content was a big consideration, Ayrey said. "The way we think about our international opportunities is it is a little bit tactical, about the content we can access."

Netflix negotiates rights to movies and shows country-by-country. "The dream for us is to get to a scale where we can buy some of that content globally."

Telecommunications Users Association chief Paul Brislen said it would have been great to see Netflix enter the market and believed broadband data caps and "limited access to content" were the biggest barriers. "You really do need a service like Netflix to drive uptake of broadband."

While Netflix has been regarded as a cheap source of pay television, Ayrey signalled it was no friend of free broadcasting.

"If we have our way, free-to-air TV will be relegated to live sport, live news, all the things we can't do. If we are ridiculously successful, we own movies and TV entertainment," he said.

As Netflix has become more popular and online streaming has caught on, it has decreased the income studios can expect from licensing content to traditional distributors such as cable operator HBO and Sky, which could in turn put pressure on rights holders to raise the prices they charge Netflix.

Ayrey said that tradeoff was not behind its July price increase, which he said was "more DVD focused". Previously customers paid a single monthly charge to get movies and shows online and DVDs by mail.

US media company Starz pulled its content off Netflix' streaming service in September, taking with it Netflix' right to stream some new Walt Disney and Sony movies such as Toy Story 3 and television show Spartacus. US reports have claimed Starz had sought a 1000 per cent increase in the US$30 million (NZ$40.5m) annual licensing fee it charged Netflix.

Ayrey – who worked as a marketer for internet provider ihug and New Zealand Post before he moved to the US aged 27 – would not comment directly on whether Netflix' early success could be attributed to content providers charging little for streaming rights during the early days of the technology, but said it faced a simple equation.

"To the extent we can buy content for a given price and create more business value from that content than others, then we are successful."

NETFLIX

Founded in 1997.

900 staff.

Valued on Nasdaq at US$3.6 billion.

Rents DVDs by mail and streams movies and TV shows online, mostly to cable customers.

Internet-connected televisions are becoming more common, but many customers watch streamed movies by hooking up Playstation 3 consoles or laptops to their televisions.

The Dominion Post