Online pirates were looking to man the torrents last week when Netflix announced it would (for real this time) begin blocking out services that let Australians sneak into the (much bigger) US Netflix library. It’s a short-term pain for Australians, but a long-term strategy for the company to finally bring about the death of legacy regional licensing deals.

For several years, until Netflix finally launched in Australia early last year, the only way Australians could access Netflix was through the US site, using a service to bypass the geo-blocks that Netflix had put in place, which prevented anyone outside the US from accessing the service. If you wanted to access American Netflix, you could use a virtual private network (VPN) service that would make your computer appear, to Netflix, to be in the US.

The company specifically points out in its terms of service that it frowns upon the practice, and Netflix reserves the right to terminate accounts in violation of its Ts & Cs, but until last week, the streaming service essentially turned a blind eye to those who wanted to sneak in.

All that changed last week when the company announced on its blog that it was going to be less forgiving and would be blocking those VPN services, now that Netflix operates in 190 countries.

Netflix launched in Australia in March last year, and according to Roy Morgan research released this week, as of the end of last year, there were over 2.7 million Australians accessing Netflix, with 1.03 million subscriptions, up from over 200,000 in April last year (Netflix itself doesn’t break down subscriber numbers in Australia). This data was interpreted by The Australian (the parent company of which has a stake in Presto via Foxtel) as people switching off Netflix after their free trials.

“There is a growing sense that Australian consumers are beginning to realise the Australian version of Netflix is inferior to the US version as they turn to local competitors Presto and Stan, which have locked up the most watched premium TV shows and new release movies under exclusive deals,” the paper’s media editor Darren Davidson breathlessly reported, without citing any evidence, or including the number of subscribers to Stan and Presto. Fairfax (a part owner of Stan) estimates that Stan has close to 700,000 subscribers.

One of the legacies of TV and film is that all content is regional. Companies can make more money by getting regional distribution deals signed. Unfortunately for the average consumer who no longer sees content as regional, this means we are stuck with different Netflix libraries in different parts of the world. When Netflix launched in Australia, it couldn’t just copy and paste its US library over to Australia but had to enter complex negotiations with the local distributors, like everyone’s favourite government lobbyist, Village Roadshow.

That means that one year on, naturally, with two competitors in the market, Netflix Australia doesn’t have anywhere near as much content as Netflix US does, where the company has had a little less competition and time to build up licensing deals through its legacy DVD mailing business.

Price comparison website Finder has crunched the numbers and the Australian Netflix has just 38.29% of the movie titles as the US, and just 34.5% of the TV show titles. A large part of the reason for this is that the local players Foxtel and Nine-Fairfax launched their own services and locked up much of the content themselves, or drove it up to a price beyond what Netflix felt was worth paying for the Australian market. Interestingly, it’s not all bad news for Australia; there are more than 3200 titles on Australian streaming services that you can’t get on US Netflix, but the site has also found that there are 3440 movies and 666 TV shows that are on US Netflix but cannot be found on Presto, Stan or Australian Netflix.

What this indicates is that there are a lot of regional licensing deals that are possibly in line to be renegotiated, or Netflix is waiting for them to expire. Last year, Netflix said it had begun “moving up the food chain” in regional licensing negotiations and was seeking to push for global agreements with film and TV studios. The company’s chief content officer, Ted Sarandos, said country-by-country deals would soon become a thing of the past:

“Instead of having to go country by country to pile up those deals, and line up those windows, this enables us to make the service, the selection far more global for viewers around the world who increasingly know exactly when these shows began, and are hungry to see them as soon as they can.”

As Netflix continues to grow, it will also have a global scale that none of the local players will be able to match, allowing the company to throw its weight around during content negotiations.

There is also bound to be consolidation eventually in the market, and that will mean some of the larger players get much bigger libraries. Quickflix, Australia’s ill-fated version of Netflix, essentially outsources its library to Presto already. Competition is healthy, however. Netflix has admitted that it bases its entry pricing on what the market will bear, so the competitive tension of at least two streaming services offering decent content in Australia is likely keeping the price point in Australia lower than it otherwise would be — particularly as the Australia dollar declines and becomes much cheaper than the US subscription price.

In the meantime, for all the doom and gloom from those concerned they’ll lose access to all those TV shows and movies they can’t get here yet, it has mostly been shrugged off by companies like Unblock-Us. The company founded on avoiding geo-blocks has suggested Netflix will be engaged in a game of cat and mouse, with Unblock-Us stating it will “make adjustments” to its service every time Netflix blocks customers trying to access a foreign library.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey