Market Insight

Netflix launches streaming service in Latin America and the Caribbean

September 06, 2011

Irina Kornilova Irina Kornilova Manager – Research & Analysis, Broadband Media, IHS Markit

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Netflix has launched its streaming service in Latin America and the Caribbean. The rollout will be staggered, starting with Portuguese-language version in Brazil on 5 September, followed by Mexico, Central America and the Caribbean on 12 September. For the Caribbean and countries in Central America the service will be available in English and Spanish. Overall Netflix will be rolled out across 43 countries in the region.

As in other regions, the service offers unlimited streaming of movies and TV shows which can be consumed on a wide range of devices - computers, game consoles (including Wii and PS3), and Smart TVs etc. Access via mobile platforms is set to appear in due course.

As part of the launch, Netflix has sealed licensing deals with international rightsholders like Miramax and CBS Studios and signed local-language content from Telemundo, Caracol Television, Telefe International, Grupo Televisa. Telemundo, owned by NBC Universal, will provide Netflix with 1,200 hours of content annually, including Telemundo's biggest hit La Reina del Sur (The Queen of the South). Netflix will also provide 3,000 hours of content from Televisa and 1,500 hours from Azteca.

Prices are broadly comparable with the streaming only plan in the US. In Brazil the service costs BR$14.99 monthly (US$ 9.12), while in Peru and Venezuela it's charged at US$ 7.99 and in Mexico MX$99 (US$ 8.00).

Netflix has not yet announced its plans after Latin America but speculation is that Spain and the UK are to be covered early in 2012.

There are several barriers to uptake that Netflix faces in Latin America, unlike in its other markets, the US and Canada.

1.       Low broadband penetration. Based on IHS Screen Digest data, in 2010 only 21.5 per cent of Brazil households had a broadband connection, a prerequisite to stream movies online. By contrast, US broadband penetration rate is 65.2 per cent, and 73.3 per cent in Canada. Additionally, questions remain over whether the fixed broadband infrastructure in at least some of the Latin American countries where the service is launching is sufficiently developed to deliver the required bandwidth to end users: Netflix requires at least 1.5 Mbit/s actual connection speed to stream video, 3 Mbps for DVD quality, and 5 Mbps for HD

2.       Games consoles have played a key role in the popularity of Netflix's streaming service, but in Brazil, the region's largest potential market, uptake has been limited because they cost a small fortune due to import duties that are among the highest in the world - shipments by air valued between US$51 and US$3,000 are subject to a flat 60 per cent duty plus 18 per cent GST applied, regardless of product classification

3.       Piracy is the other concern Netflix has to deal with. The Latin American region is considered to be one of the worst in the world in terms of infringement of intellectual property rights. The result is that launching any paid-for legal service is going to be challenging

Further, it's questionable whether Netflix's streaming video service can, at this stage, substitute a full pay-TV offer in Latin America - not only given the potential issues with reliably delivering streamed content over the region's broadband networks, but due to a comparatively limited content line-up compared to traditional pay TV offers. Netflix's service relies on a small volume of second-tier studio rights, lacking significant sports content, including football, plus key national channels, news, kids and adult programmes; this makes Netflix more of a content aggregator, rather than a fully-fledged pay TV platform.

Nonetheless, Netflix faces a lack of competition in the region from other online video streaming services. In Brazil, Netflix has only one direct competitor, movies and TV shows rental company NetMovies, which offers 35,000 titles on DVD and Blu-ray for BR$15.99 (one disk at home) a month, and 3500 titles available online for BR$9.99 a month for its online-only service. There are also Pipoca Online and Blockbuster DVD-by-post services, but these lack an online streaming proposition.

The service provider will face stiff competition from well-established satellite and cable pay TV operators to become the primary subscription video service in Latin America. The opportunity for Netflix to win this battle is greatest in underdeveloped pay TV markets where broadband is already, or is set to, overtake pay TV in terms of penetration. In Brazil, for instance, broadband penetration in 2010 already exceeded pay-TV: there were 12.5m broadband households compared to 8.1m digital pay TV subscribers. This compares to Mexico, Chile and Argentina, where digital pay-TV penetration is either below or equal to fixed broadband penetration. On average, primary digital pay TV penetration Latin America is comparatively low compared to the US - around 20 per cent in 2010 according to IHS Screen Digest (Brazil less than 15 per cent, Argentina 20 per cent, and Mexico 29 per cent) vs. 72 per cent in the US.

Netflix could see most success online in countries such as Argentina and Mexico where the broadband market is dominated by incumbent telcos and where the pay-TV market is controlled by satellite and cable TV players. In these two countries, as in a number of other Latin American countries, regulation has hindered incumbent telcos from launching IPTV; telcos have instead favoured investing in satellite platforms to deliver pay TV. Given broadband and pay-TV services are frequently supplied by separate companies in these markets (rather than a single multiplay operator), Netflix may, longer term, encounter less competition to its online proposition from pay TV providers launching their own online video offerings, bundled for free in all-in-one broadband-plus-TV packages (as an attempt to protect and add value to their traditional TV subscriptions).

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