For decades, Australians have paid more for television and movie entertainment than many of our overseas kin. Only recently have consumers begun to realise that companies operating here have, for years, been squeezing as much money as they can out of their content.
But, as with clothes, cars and cosmetics, the argument that Australia’s isolation is the cause of higher prices is wearing thin. And looking hungrily at the buffet of content on offer in the US at much lower prices, it’s little wonder Australians are licking their lips excitedly at rumours Netflix – the $US9-a-month ($10) streaming service – is planning an entry into the Australian market next year.
But it’s time for a reality check. Even after Netflix arrives, television viewers and moviegoers will not find a single source of an endless amount of cheap, up-to-date and premium content.
Netflix’s business model is strong and the subscription video-on demand service has evolved into a $US27.5 billion listed company with more than 50 million subscribers worldwide.
But the model is not a one-stopshop service – which may come as a disappointment to Australians.
Netflix has based its business on a huge catalogue of TV shows and movies which are usually a year, or a season, behind the first run.
There are exceptions. As it has grown, Netflix has begun to finance its own television series, such as House of Cards and Orange is the New Black. But most of its content is second-run , after broadcast, or considered not premium.
"There’s a misconception among Australian consumers that Netflix has every movie or television show created available on it," Citi analyst Justin Diddams said.
As revealed by Fairfax Media, Netflix has secured exclusive Australian subscription video on demand rights to superhero series Gotham. However, it would not be able to offer the show until a year after the broadcast premiere, which will be on Nine.
While the Australian rights came as part of an international rights deal with Time Warner’s Warner Bros, it is the biggest hint yet that Netflix is assembling an arsenal of content for a rumoured launch here.
A Netflix representative would not comment on its plans for Australia or any other country where it does not yet operate.
Despite having exclusive subscription on demand rights to Gotham, if Netflix were to launch in Australia it would be staying true to the business model it built in the US.
"Content rights are a minefield . There’s a lot of moving parts and a lot of things that content buyers have to navigate. It’s not clear cut how it’s going to pan out," Credit Suisse analyst Fraser McLeish said.
Sports, news, first-run drama and big reality TV are more suited to free-to-air or pay TV, while Netflix provides binge-viewing , in many cases replacing DVD box sets, Mr McLeish said.
In the US, Netflix’s home market, traditional subscription or cable television penetration is estimated to be above 85 per cent. Netflix has grown to about 25 per cent penetration in the US.
"There’s a belief among investors that there is going to be this new era of television, which sparks the death of traditional broadcasting models," Mr Diddams said. "I’m not convinced that SVOD is the death of broadcast."
Australians often complain that they are getting a raw deal in terms of content and price, and it’s true that local subscription services are more expensive than Netflix – Foxtel recently cut its basic cable to $25 a month; Netflix costs $US8.99 a month. But if consumers are expecting premium content from Netflix , they may be disappointed – as Netflix’s local, would-be rivals are quick to warn.
"Netflix has done a great job," Foxtel chief executive Richard Freudenstein told Fairfax Media. "They have a couple of fantastic new shows and a lot of older stuff, and that’s a business model that’s working for them. But you can’t compare that with Foxtel and other providers."
Netflix has no HBO shows, including the much-pirated Game of Thrones. It has popular shows such as The Walking Dead and Breaking Bad, but they are offered after the season has finished on television.
While Australians complain about the lack of "cheap" , legal options for watching HBO shows – especially Game of Thrones – it’s worth noting that there is no cutprice way to legally watch Game of Thrones in the US either. It is available in the US only through a traditional pay-TV subscription; one of the cheapest being $US29.99 a month with 20 channels, including HBO, through Time Warner, or by bundling HBO with an internet provider.
Foxtel is betting that its triple play of cable TV, internet and phone services, to be launched early next year, will tempt Australians, who have resisted subscription TV because of price, to sign up.
"Triple play makes pay TV more accessible, making it even more compelling from a value point of view," Foxtel chief operating officer Rohan Lund said.
Netflix was a supplement, not a substitute, Mr Lund said, and it would have a tough battle to satisfy Australian viewers.
"We think people’s expectations for content in this market will be high, so they’ll want more currency and quality," Mr Lund said.
Mr Diddams said Australians were willing to pay. "We spent $6.2 billion on content in 2013, of which $2.5 billion was the direct purchase of physical content, albeit declining year-on-year , but it still highlights the demand."
A key explanation for why Australians pirate American TV shows is that they want to see programs as soon as they are broadcast in the US; Netflix would not offer any change on that front.
"Let’s cut through the marketing hype that Netflix is some sort of programming panacea," Seven Network director of programming Angus Ross said.
"The latest episodes of the Australian and international programs that the majority of Australian viewers love will not be available on Netflix ."
It would be naive for Australian broadcasters to think Netflix does not harbour ambitions to become a one-stop stop for content and to dominate the global television landscape.
There is a reason Australia’s big media players are getting their ducks in a row and announcing subscription video on demand deals, such as the 50:50 venture between Fairfax Media and Nine Entertainment, StreamCo, while Seven and Foxtel are rumoured to be in advanced discussions.
"The goal is to become HBO faster than HBO can become us," Netflix chief content officer Ted Sarandos told GQ last year.
FetchTV chief executive Scott Lorson expects Netflix to enter the Australian market sooner or later, but it won’t be smooth sailing.
"Netflix is a playing a long game with some very deep pockets and a growing catalogue of their own content," Mr Lorson said.
"We wouldn’t bet against them in the medium or long-term , but we do recognise they will have some challenges at launch."
"It’s not clear cut how it’s going to pan out."