A Netflix reality check

America's favourite subscription video service won't conquer Australia without a struggle and will have to learn to play by local rules. The poster child of on-demand content is unlikely to be an immediate hit.

It's been on the cards for several years but US streaming video giant Netflix is finally coming to Australia in March. Up to 200,000 Aussies already sneak into the US all-you-can-eat library of movies and TV shows, but that doesn't mean that we'll embrace a local Netflix with open arms.

Netflix is the poster child of on-demand content in the online age. It breaks the shackles of traditional media to deliver what you want – where and when you want it – for only a few dollars per month. Like fellow technology trendsetter TiVo, the word "Netflix" has become a verb that is synonymous with the idea of wrestling back control of your viewing habits.

That all sounds great in theory and digital hipsters will tell you that traditional broadcasting is already dead, but any discussion of Netflix's impact on Australia needs to begin with a serious reality check. Netflix doesn't even come close to putting everything you'd ever want to watch at your fingertips, not even if you're side-stepping geoblocking to sneak into the US service.

Netflix is not Catch Up TV

Netflix won't change your appointment viewing habits. New episodes of Homeland won't appear on Netflix as soon as they screen on free-to-air TV, even though the networks offer them online for free (but loaded with advertisements). Catch Up and subscription rights are completely separate deals.

This lag wasn't a problem when local broadcast schedules were years behind the US, but Australian fast-tracking efforts have taken some of the shine off subscription services. You won't find this week's episode of Marvel's Agents of S.H.I.E.L.D. on US Netflix, because it only screened in the US last week. It won't be available on Netflix until next year. The same with movies – you mostly won't see them on US Netflix until long after they've left the cinemas and are available to buy or rent in Australia.

The situation won't improve once Netflix opens its doors in Australia. Case in point, Netflix has just signed the Australian rights to the Batman prequel series Gotham. Nine holds the broadcast, first-run and in-season Catch Up rights, which means Netflix can't show Gotham for 12 months.

Considering all this, Netflix is hardly going to lure people away from free-to-air broadcasters and their Catch Up services. The content you'll find on Netflix in the US or Australia is very different to what you'll find on Seven's Plus7, Nine's Jumpin and the ABC's iView. Netflix is also unlikely to lure people away from piracy either, not unless they're only using BitTorrent to catch up on re-runs.

Best for when there's nothing to watch

Rather than impact on appointment viewing, Netflix could instead change the way people channel surf when there's nothing worth watching. Rather than sitting through whatever rubbish the broadcasters serve up, the temptation will be to flick across to Netflix and watch something you're actually interested in. It could be a repeat of your favourite show, or you might take the opportunity to dive into a series that you missed during its free-to-air run.

This is the viewing audience that local rival Quickflix is already targeting and will likely be the starting point for new rivals like Nine and Fairfax's joint effort Stan. But this will change with time. For example, Stan and Quickflix have both licensed repeats of Breaking Bad but Stan has also secured exclusive first-run rights to its spin-off Better Call Saul.

Stan will offer the only legitimate way for Australians to watch Better Call Saul in sync with the US broadcast schedule and you can be sure that proposed rivals from Seven and Ten will be looking for similar flagship content. It's a sign of things to come but of course if you're forced to pay for all of them in order to watch every new show then piracy remains an attractive alternative.

Netflix's major disadvantage

You won't find Game of Thrones and True Detective on Netflix, not even old episodes, because of its ongoing war of words with cable TV giant HBO. Even old HBO programs like The Sopranos are suspiciously absent. Netflix's library has slowly diminished over the last few years as other content providers have struck deals with rivals like Amazon or started their own streaming service in an effort to break Netflix's stranglehold.

This rivaly puts Netflix at a major disadvantage abroad, because in countries like Australia it encounters an incumbent pay TV provider like Foxtel which has already forged strong links with HBO and other premium content providers from around the world. Even local all-you-can-eat services like Quickflix have a healthier relationship with HBO than Netflix does.

While struggling to deliver some premium foreign content, Netflix will also struggle to secure the rights to premium Australian content because the local broadcasters will surely realise that it's their most powerful bargaining chip with Australian audiences. Netflix will sign a handful of high-profile shows as a token effort, but there will still be a lot missing compared to what Seven and Nine can grab from their re-runs schedule and exhume from their vaults.

Pick twenty of your favourite movies from the 80s and 90s and you'll be lucky if five are available on Netflix. You'll have more luck with television shows but there's still a lot missing. All those movies will almost certainly be available from Netflix on DVD via the post, but not to stream. The movie houses are not keen to hand Netflix the keys to the kingdom and they're still treating subscription viewers as second-class citizens.

Local rivals face the same challenges, almost all the movies missing on Netflix are also missing on Quickflix. It's a different story with Foxtel's Presto, but with an ever-changing library of around 1000 new-ish movies and no television shows Presto isn't really a rival to subscription services as much as it is to rental services.

Australian Netflix will need to play by Australian rules

Netflix's two greatest weapons in Australia are brand awareness and deep pockets but once it opens its doors in Australia it has to abide by local rights agreements. Just as in other countries where Netflix has established a foothold, there's no way it can offer its full US library in Australia.

You can forget about the occasional anomaly like watching Parks and Recreation on Australian Netflix before it's screened on local free-to-air television. You can probably forget about watching House of Cards at all – it's not mentioned in Netflix's Australian press release because the Australian rights belong to Foxtel. If that's what you want from Netflix then you're better off sneaking into the US service.

You can expect a major marketing blitz but, once it's forced to compete on a level playing field, Netflix will struggle to offer much more in Australia than Quickflix. It's difficult to see Australians who currently sneak into the US settling for a watered-down local service, although with a little DNS trickery you can have the best of both worlds for the one monthly fee.

Quickflix has the advantage of a pay-per-view service which lets you pay for new content like Game of Thrones which hasn't been added to the subscription library. Meanwhile rivals like Stan will have a wealth of Australian content to draw on, even if it's Nine's classics like The Sullivans, Skippy and McLeod's Daughters designed to bring in mainstream viewers who are yet to be tempted by subscription services.

If Netflix wants to make headway in Australia it should be wining and dining the likes of Crawfords and Fauna Productions. Whichever subscription service can slap the iconic bush kangaroo on their promos will have the upper hand when it comes to winning over Australian viewers.

Apart from deep pockets, Netflix's greatest strength is that it has grown from the new-media "give the people what they want" mentality, whereas Australia's broadcasters are still very much entrenched in the "we talk and you listen" mindset. If they want to rival Netflix they need to keep their arrogance in check and keep in mind that they are not too big to fail.

Individually Australia's new subscription services like Stan could struggle to match the value proposition of Netflix, but Nine and Seven refused to cooperate on a Hulu-style cross-network service which combines Catch Up with subscription content. Australia's broadcasters could barely contain their infighting long enough to get FreeviewPlus off the ground.

The beauty of deep pockets is that Netflix can afford to sit back and wait for its rivals to cut their own throats if they can't adapt to the new world.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles