Netflix: Not coming to a screen near you?

Netflix: Not coming to a screen near you?
Western expats in the Middle East – a big potential market – are able to bypass local content restrictions with a VPN, viewing as if they were at home. (Shutterstock)
Updated 23 July 2018

Netflix: Not coming to a screen near you?

Netflix: Not coming to a screen near you?
  • For the second quarter running – Netflix failed to hit its target for new subscribers – resulting in $30 billion being wiped off its stock market value
  • The service is not a dominant force in the Middle East and North Africa – for the very good reason that so little of its content is in Arabic

LONDON: What is going on with Netflix? On one hand, the streaming service is now so popular that Ofcom, the UK’s media regulator, says it poses a real threat to traditional television, and especially to pay-TV channels such as Sky and Virgin.

On the other hand, the numbers tell a different story. For the second quarter running, Netflix failed to hit its target for new subscribers. This resulted in $30 billion being wiped off its stock market value, fueling a debate around one question: Has Netflix hit its peak?

The service has more than 130 million subscribers around the world, but that global reach is not as global as it could be.

The service is not a dominant force in the Middle East and North Africa, for the very good reason that so little of its content is in Arabic.

According to data from IHS Markit, the Starz Play and Shahid Plus services each have more than a quarter of Internet-TV subscribers in the region, while Netflix’s share is just 16.5 percent.

 

The Netflix strategy has been to attract subscribers through the quality (generally high) of its content. That content doesn’t come cheap but it is supposed to be covered by revenue from a growing number of subscribers.

This year the Netflix budget for content — 700 original TV shows and 80 films — is $8 billion.

Though Arabic films are available on Netflix, since launching in the Middle East at the end of 2016, it has produced only one original program in Arabic, a comedy special with the Lebanese actor and comedian Adel Karam.

In February, Netflix announced its first original series in Arabic, “Djinn.” The six-part young adult fantasy adventure is directed by Lebanese director Mir-Jean Bou Chaaya, the screenplay is by Oscar-nominated writer Bassel Ghandour and the actors are Middle Eastern.

But as filming was set to start in Jordan “later this year” it has not hit the screens yet.

Little wonder, then, that Netflix is having problems competing with rivals that already offer programming more tailored to locality.

“If Netflix wants to have as much clout in the Middle East as it does in English- and Spanish-speaking countries, it will need to produce much more content than reflects the area’s culture and languages,” said Jon Fingas, associate editor of the technology news website Engadget. Netflix did not immediately provide a comment for this story.

However, Netflix appears to be addressing another reason for its failure to make the desired impact in the Arab world: Accessibility.

In a region where incomes vary greatly, not everyone can afford to upgrade their television set or buy the supplementary device required to receive Netflix.

In February, Netflix signed a deal to make its content available through Dubai-based pay-TV provider OSN. Subscribers will simply pay through their existing OSN bills.

Media analyst Ronan Shields, digital editor of The Drum, said, “Success in markets such as the Middle East and North Africa relies on localization. While this is true of anywhere, the Middle East is undoubtedly a key region where Netflix will have to focus if it is to return to growth rate that will please investors.”

Netflix also announced it intended to appoint an executive charged with sourcing local content in the MENA region. But the search “appears to be ongoing,” said Shields.

The fact that the OSN partnership was not due to kick in until the latter part of the second quarter also means it is still too early to judge if the moves have made a difference to Netflix’s fortunes, he added.

“I would expect Netflix to spend big on publicizing these utilities (and content) in the region in order to boost take-up in the region.”

How people pay for Netflix services could also hamper its penetration in the region. While the use of credit and debit cards is widespread in some parts, other parts remain cash-based.

The ability and possibly the availability of wireless networks to support streaming could be another factor, along with local censorship of content. Western expats living in the Middle East — a potential big market for Netflix — are able to bypass local restrictions on content by using a VPN, enabling them to view programs as if they were in their home country. Analysts wonder if expats would be willing to pay for Netflix content when they have alternatives to hand.

However, Gurpreet Kaur at JPMorgan Chase said there were encouraging signs for the streaming service from India, given the success of the film “Lust Stories” (launched in the last quarter) and the first original series from India, “Sacred Games,” which began on July 6. Another series, “Ghoul,” is due to launch on Aug. 24.

“We believe these pieces of content can help drive word of mouth around Netflix and build the brand in India,” said Kaur.

“Overall, while second-quarter net adds and the third quarter outlook are disappointing, we do not believe they reflect a fundamental change in the Netflix story. We continue to believe Netflix can reach 200 million global subscribers in 2021.”

FASTFACTS

130 million — Netflix’s global subscriber base / $30 billion — Drop in share price after announcing disappointing customer growth / $8 billion — Netflix’s budget for content this year / 700 — Number of original TV shows it plans to make / 80 — Number of films


‘How do we get smarter? With better data’

‘How do we get smarter? With better data’
Updated 22 January 2021

‘How do we get smarter? With better data’

‘How do we get smarter? With better data’
  • Media innovator Tarek Daouk on the key trends shaping the Middle East’s business future

DUBAI: In January 2020, Tarek Daouk, CEO of media and advertising group Dentsu MENA, sat with his leadership team discussing what they believed was a generally optimistic year ahead for business. Fast-forward six weeks later and the whole world was in crisis.

“There was no way to predict what was going to happen, and how fast and how bad this was going to affect people and businesses across the world,” he said, recalling the widespread uncertainty at the time.

Although Daouk hopes COVID-19 vaccines will help the world get back on its feet, “the unpredictability of how we plan and make the business flexible enough to react to things that we cannot predict will always be there.”

Business challenges

The key challenges that businesses faced in 2020 — and will continue to face as the economy improves — are supply and demand, and cost infrastructure.

Daouk said that many clients faced logistical challenges due to restrictions on supply from outside the region, resulting in a delay in business activities.

“Obviously, this is easiest to sort out as things go back to normal,” he said.

However, the bigger issue is that of demand. Due to lack of job stability and an economic downturn, consumers became wary and even as the supply chain returns to normal, it will be a while before consumer confidence bounces back.

“That’s also the role of businesses, especially marketing and advertising, to restore people’s confidence in investment,” he added.

The second challenge is that of cost infrastructure across cities and sectors in the region where the cost of doing business was already high. Rents, especially, play a major role, with businesses forced to close their offices still paying high rents.

Geopolitical scenario

However, Daouk sees a silver lining largely on the back of Dubai and Saudi Arabia’s potential. It is an ideal time for Dubai to play a role as a hub beyond the MENA region.

Due to its location, Dubai is a strategic spot for businesses operating across Europe, Asia and the MENA region, which is critical at a time when Europe is still relatively locked down.

“I have met a few companies that are headquartered in Europe and many are considering relocating their headquarters to Dubai,” he said.

Moreover, as company structures change, there is room for a more mobile headquarters, which can be moved from one country to another depending on the business’ focus market at a given time.

Saudi Arabia is Dentsu’s largest and most significant market in the region with the highest per capita gross domestic product. Vision 2030 has opened up new avenues of doing business in the Kingdom that are already attracting investment, with the Kingdom’s investment in tourism and local entertainment giving the country a big push and strong potential to bounce back, Daouk said.

Increased digitization

With investments in digital advertising climbing well over 50 percent of the total ad spend in 2020, it is clear that businesses are seeing the benefits and reaping the rewards of their investments.

Daouk highlights the move toward digitization for business transformation, with companies investing in moving data to the cloud through products such as Microsoft Azure, and using the data to model business and advertising decisions.

“It allows you to put a layer of analytics on top of the data to help these businesses in their decision making, which will transform to a better, smarter, more personal experience for the consumers,” he said.

Lack of advertising measurement

Dentsu MENA has helped a retail client move its data to the cloud with a predictive modelling exercise to help the sales team by collecting data from all touchpoints — from the store to an online ad.

The businesses data is much more robust than the advertising data. For instance, digital media consumption data is provided by the digital platforms without any third-party auditing. Similarly, measurability for offline media consumption remains a challenge.

Daouk said that there are initiatives in the pipeline to improve measurability, with plans to launch people meters to measure TV in Saudi Arabia. But for now, he said, “we are getting faster, bigger, more accurate data — marketing data — much faster than what we get on media consumption.”

Decline in advertising spend

The global decline in ad spend in 2020 is forecasted to be around 9 percent, but in the MENA region it has fallen by up to 25 percent.

The obvious reason behind the decline is the pandemic. However, there are other factors at play. The increase in the digitization of business transformation, for instance, has taken budgets away from advertising.

However, according to Daouk, the disparity in the decline of ad spends in the region compared with the global figure began in 2016. Most ad budgets for the MENA region are decided globally and he has noticed a decline over the years in budgets allocated to the region. This could be attributed to a softness in the market that began in 2016, coupled with reduced consumer spending and a high cost of doing business.

Moreover, as other markets such as Asia began growing, they also commanded a higher share of the global ad budget.

“This is why there might be an opportunity for the region now. The role of the region is changing, but we need to bring trust, and trust can only be brought through measurability, governance and data,” he said.