Netflix and telcos: unique strategy to maximise SVOD reach in Latin America

Netflix recently partnered with Megacable in Mexico, to bundle its Standard & Ad-tiers offers with Megacable’s 2Play and 3Play offers. Aligning with a tier-1 national operator could drive significant growth for the streaming giant in Mexico. Launched in Mexico and the rest of Latin America in 2011, Netflix has expanded its network of partners, employing a different strategy than its competitors. What’s the rationale behind such distribution strategies and how has it proven to be successful for the Los Gatos’ firm and its competitors ?

Bundling between OTT services and telcos, mobile and Pay TV operators is a win-win

The marriage between video streaming and telco providers indeed brings immediate benefits to both parties. For telco providers, it is the chance to differentiate their service offering in the face of increased commoditization of broadband and TV services. For streaming providers, it is the chance to gain new subscribers by bundling their content with distribution carriers. More generally, as the number of OTT platforms increases, a shift occurs in consumer demand: consumers are looking for easier ways to consolidate and manage their content subscription services. The aggregation of various SVOD offers also opens the door to making cross-catalogue recommendations. When partnering with a telco, billing and payment are handled by the telco through direct carrier billing. This arrangement is convenient, especially in geographies where credit card and bank account penetration are low.

Looking at the chart above, Max (ex-HBO Max) and Paramount+ appear to be the two OTT services accumulating the highest number of partnerships with Pay TV, Telcos and other SVOD aggregators in the region. Those figures are taking into account unique partnerships, meaning if an OTT service is partnering with an international operator, it is counted as one agreement in total and not one for each country in which the partnership is active. Disney+ and its popular regional service Star+ come right after. Lionsgate+ (ex-Starzplay) totalled 35 partners, boosted by its agreement with Disney+ in each one of its active markets in the region, and its existing deals with Cable TV operators to distribute premium channels. This has been insufficient to revitalise the platform as Starz announced pivoting its strategy in Latin America and closing the service regionally at the end of 2023.

Netflix: selective network of partners but highest reach

It may come as a surprise: in a battle where every OTT service tries to multiply alliances to boost potential subscription and scale internationally, Netflix comes, last behind its main competitors in terms of unique partners in the region. Indeed, the company has waged a different strategy and has been more selective than its rivals, and yet, successfully. As evidenced by the map below, Netflix ranks first in terms of potential accumulated reach in 3 of the main 6 markets in Latin America, and first regionally. Accumulated reach is the sum of subscribers of each operator that implemented a partnership with the SVOD service.

In terms of Accumulated reach in Mexico, Netflix seems to be outpaced by its competitors. But in reality, the service prioritised its distribution with broadband providers and is available within the vast majority of them. In Brazil, distribution agreements are becoming all the more essential as OTT offsets the sharp decline observed in Pay TV. In Argentina, Amazon Prime Video signed a key distribution partnership with the mobile offer of Claro Argentina, enhancing its reach by more than 20M. Paramount+ and Max have multiplied distribution agreements with Telcos, in what appears as a defensive move to catch-up with Netflix since the latter can rely on a strong network of alliances with top-tier mobile and Pay TV operators. Indeed the average subscriber base of a Pay TV partner of Netflix in Latin America is 1.27 million vs 0.9 million for Disney, 0.7 million for Paramount and 0.6 million for Max, and the trend is the same for Telcos partners.

Max and Paramount are extending their distribution, attempting to compete with Netflix’s reach

Meanwhile, Max and Paramount+ have been targeting every medium-sized broadband and Pay TV operators. As shown on the above chart, they leveraged their existing linear distribution agreements with cable operators to bundle their OTT services on top of their premium packages of channels. Their deployment has therefore been rapid and massive. Yet, the uncertain revenue share with operators, primarily driven by the studios' focus on boosting the brands of their new OTT services, combined with the rising costs of developing multiple applications to increase their reach, leaves the profitability of these distribution agreements in question. Disney+ and Star+ have taken advantage of new entrants in the market such as Mercadolibre, and have built a wide and diverse network of partners (telcos, pay TV operators, but also banks and marketplaces).

Most SVOD services are commonly included in packages or offered as add-ons. Standalone distribution, primarily utilised in mobile carrier agreements, is a significant strategy for Netflix, Amazon Prime Video, and Disney+. These partnerships may be less impactful in terms of subscription growth but serve primarily for billing purposes. Conversely, Max and Paramount+ are rarely offered as standalone services, with a majority of their partnerships involving packaged distribution deals.

Local and smaller OTT platforms are adapting their distribution strategies

Globoplay is the only regional OTT service that managed to enter the top 10 ranking in terms of number of alliances. The OTT service of the main Brazilian media group successfully signed partnerships with major Brazilian telecoms operators and regional operators. Globoplay also bundles with the fiber offerings of rising regional operators born after mergers & acquisition in Brazil such as Brisanet, MHNet Telecom, Desktop and Alares starting from Q3 2023. How long can the major US SVOD players go without using the footprint of local Brazilian pay TV and fiber operators?

Still in Brazil, a growing number of sports-related OTT launched their services. Some like Nosso Futebol are closing partnerships with local operators (Conecta Minas Gerais). Those who were first Premium TV packages of channels like Combate with Combate Play have secured a more aggressive roll-out (Claro Brazil, Conecta Minas Gerais, DGo Brazil, Globoplay, Oi Group for instance). Knocking on the door of national and local operators is, to a greater extent, the strategy of all new OTT upcomers. Also, smaller, specialised and niche SVOD services are broadly taking advantage of OTT platforms acting as aggregators such as DGo or Clarovideo. In Peru, Liga1 Play, the OTT of Liga1 Max that secured the rights of the national football championship, has followed the same path and closed distribution deals with Claro, Clarovideo and DGo.

In the content-aggregation era, are distribution deals really impactful on subscriptions?

The battle for eyeballs will only intensify, as SVOD launches are multiplying and as those companies leverage various tactics to grow their subscriber base. From the telcos perspective, the strategy is reversing: alliances with Netflix and with OTT platforms in general, are perceived as a chance and solution to overcome the decline of some of their services. Some might even argue that telcos and Pay TV companies are becoming resellers instead of using OTT bundles as consumers acquisition tools.

However, while many operators perceive bundled OTT content as a good way to differentiate their services from competitors, this is becoming increasingly difficult as OTT providers partner with multiple carriers rather than sign exclusive distribution agreements, especially as markets are becoming mature. As more and more services are now bundled in operators’ offers, the value of the potential reach might be reduced, because the services are not necessarily visible. Operators will showcase in priority on their interface the platforms with the highest consumer demand, or with which commercial agreements including this privilege were signed. Even so, not every SVOD service can play it like Netflix: no other service can afford to limit its availability with a lower number of partners.

Deals between SVOD platforms and Connected TV manufacturers also drive growth, but these manufacturers are now venturing into the content business, introducing AVOD and FAST offerings. The competition in the FAST market, centred around content aggregation, has intensified, providing customers with an ever-increasing variety of content. Currently, FAST channels rely on OTT providers and smart TV manufacturers for distribution, and potential expansion could include cable companies' IPTV services. As the content-aggregation era continues to unfold, the growing number of distribution agreements in the OTT landscape offers consumers an expanding selection of entertainment choices. On top of their need to build a strong network of distributors, OTT services will have to find innovative ways to stand out amid the ever growing plethora of choices offered to consumers: creating strong brands and engaging catalogues will be key strategic axes to succeed.

Lucas Launay

Analyst at Dataxis

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Published on: Thursday, 09 November, 2023

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