Market Insight

Indonesian incumbent telco lifts Netflix ban

April 14, 2017

Jun Wen Woo Jun Wen Woo Senior Research Analyst – Online Video, IHS Markit

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PT Telekomunikasi Indonesia (Telkom) and Netflix have entered into an agreement which will unblock the Netflix service on the state-controlled incumbent telecommunications operators network. Deal requires Netflix to fulfill Indonesian regulation whereby its content will go through censorship and the company must form a partnership with a local operator or create a local unit in the country. 

Our analysis:

Netflix was blocked by Telkom less than a month after its January 2016 launch in Indonesia. Telkom deemed the Netflix serviced failed to comply with censorship and business law as required by the Indonesian Government. As a result, user access to Telkom’s platforms was blocked including the Telkomsel mobile network and IndiHome broadband network. This placed Netflix at a competitive disadvantage in the most populous country in Southeast Asia. Despite the Telkom ban, Netflix was available via other mobile and broadband operators’ network.

However, partnership with Telkom provides Netflix with access to an even larger number of potential subscribers. As the largest telco in Indonesia, Telkom serve 174 million mobile subscribers, 60 million mobile broadband subscribers and 4.3 million fixed broadband subscribers. Telkom currently owns over 40% of total mobile and 80% of fixed broadband subscriptions in Indonesia.

For Telkom, a video partnership enables its mobile division to leverage demand for popular content to acquire and retain new users and increase average spend per user. This deal will also reduce customer churn as well as generate more revenue through increased video consumption. Telkom already partners with other regional online video services including Catchplay, iflix and HOOQ.

Offline viewing feature was recently added to Netflix service for select titles to be viewed on smartphones and tablets. This feature is attractive to a user with limited internet connectivity. Apart from that, local content and partnerships remain important for Netflix’s globalisation strategy. However, Netflix’s international service business is not without its challenges after the business reported a USD 66 million loss in the final quarter of 2016. Netflix’s international paid subscriber base reached 41.2 million by the end of 2016, compared with 47.9 million in its home US market. Netflix is expected to reach the 100 million milestone by the end of April 2017. IHS Markit estimates the Asia Pacific accounts for 5% of Netflix’s total paid subscribers by the end of 2016, which is forecast to reach 11% by 2020. 

Geography
Indonesia
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