The US internet streaming service, Netflix has entered into the partnership with SoftBank, mobile operator in Japan one week prior to its launch in the country. This partnership allows SoftBank customers to subscribe to Netflix at its stores and pay the monthly fee through their phone bill. SoftBank added that it will begin pre-installing the Netflix app on its smartphone for sale after October 2015.
Netflix is set to launch in Japan on September 2. Pricing structure will consist of three tiers, starting with Basic Plan – 1 stream and SD quality content for JPY650 a month excl. tax (USD5.37); Standard Plan will provide two simultaneous streams and content in HD quality for JPY950 a month excl. tax (USD7.84); while Premium Plan priced at JPY1450 a month excl. tax (USD11.97) will provide users with four simultaneous streams with 4K ultra-high definition content. The launch in Japan marks Netflix's first step into Asia. Netflix is planning to be available in 200 countries by 2017.
Netflix has been collaborating with local players - mobile and pay TV operators in most markets it is available in. Optus and Vodafone are working with Netflix to offer mobile bundled plans in Australia and New Zealand respectively; Netflix has been working with Deutsche Telekom in Germany, Bouygues Telecom in France, Com Hem in Sweden, Virgin Media and YouView in the UK. Partnerships with local players have become an increasingly common strategy for Netflix to extend and maximise its reach.
Mobile operators are playing a significant role of the Japanese online video market. In 2014, Japan had a smartphone subscription penetration of 54.8%, this number is expected to reach 85.6% by 2019, according to IHS Technology Mobile Technology Intelligence Service. Mobile services in Japan, most notably, SoftBank, NTT Docomo, and KDDI, are operating successful mobile video services, including Lismo Video and Video Pass by KDDI, dTV by NTT DoCoMo and UULA by SoftBank.
Partnership with Softbank will provide Netflix with access to approximately 37 million of SoftBank mobile subscribers as potential user base. It would also help Netflix to promote its brand to local consumers alongside with well recognised SoftBank’s brand, which should help Netflix address the risk of brand sensitivity, raised in Q2 report call.
Softbank will benefit from mobile video consumption which will drive revenue on mobile networks with the wider adoption of 4G networks. Video partnership is a way for mobile operators to leverage demand for popular content to acquire and retain new users and increase average spend per user. In addition, IHS believes that SoftBank will receive a fee for new Netflix customers signing up via the SoftBank platform.
Netflix’s entrance in the market is expected to intensify the competition between established online and mobile players. Netflix will have to compete with online video services like Hulu Japan, Tsutaya TV, U-Next and Showtime, SVoD initiatives by broadcasters – NHK, TBS and Fuji TV, and multiscreen propositions by pay TV operators - J:COM, Hikari and Sky Perfect.
In order to address the potential risks, Netflix has opened a regional office in Tokyo to collaborate closely with Japanese electronics firms and TV and movie producers. Sony, Panasonic and Toshiba have now integrated Netflix into their devices before its actual launch. Learning from other services' mistakes, Netflix is investing in local and original content by partnering with Osaka-based talent agency Yoshimoto Kogyo to produce local content and signing a deal with Fuji Television for exclusive rights to deliver its content.
It might not be easy for Netflix to repeat its US success in other markets. However, this partnership and several other investments by Netflix show that the company recognises the challenges it will face in the market.