Opinion

Q&A with iflix CEO Mark Britt: Internet TV in Asia is tough and messy. It’s like a knuckle fight

Mark_BrittIt’s a little over 12 months since Mark Britt swapped life as a “happy executive” at Australia’s Mi9/Ninemsn to launch Kuala Lumpur-based video on demand start-up iflix. In a Q&A with Mumbrella chief reporter Steve Jones, Britt talks of the potential of the business, its “huge challenges” and how iflix is playing a pivotal role in tackling piracy in Southeast Asia.

What drew you an internet TV start-up in a region where the technology infrastructure and internet penetration may not seem conducive to such a product?

There was an opportunity to go from being a happy executive in a large company to actually starting something from scratch, to be a genuine entrepreneur and creating something that you own and be a part of. It’s been hugely challenging but incredibly rewarding.

What markets in iflix in and how many subscribers do you have?

We have passed 170,000 customer sign ups over the past 10-12 weeks so it’s going well. We are in Malaysia and Philippines which is where the 170,000 customers comes from and we will launch in Thailand over the next few weeks.

What is the content mix and what is proving popular?

If you take Malaysia it’s about 5,000 hours of western content, 2,500 hours of local content – which is hard to get because you need to digitize it and remove ads – and, interestingly, 3000 hours of Korean content.

Korean dramas is enormous, as is Aminee. Horror is also huge. The one bit of feedback we get on social media is ‘we love horror can you get more’.

Horror for us is very significant investment because it’s probably not traditionally well served by television and the nice thing about Internet TV is that you can program for the niches.

Every market has its own content library and there is probably 60 per cent commonality between Philippines and Malaysia and again between Philippines and Thailand so we have about 10,000 hours in store each market and 20,000 hours overall.

You have struck a number of content deals with the likes of MGM, Paramount and Disney. Content deals don’t come cheap. Can you what your investment is in content?

[Long pause] No. What I would say is that content is the most significant investment for any player.

How are you marketing iflix?

We are obsessed with data, so we are probably 80 per cent digital and I think that will continue for the long term. Southeast Asia is culturally very diverse so in somewhere like Malaysia you have a Chinese community, an Indian community and a Malay community and they respond to different ads and different content and they want to have a different experience.

ifliximage

We have become passionate about trying to set up high quality programmatic data and buying in SE Asia and it’s been an incredibly challenging journey to bring that into the market for the first time.

The other part of our marketing strategy is that we have deep relationship with celebrity influencers so we have already have Maya Karin in Malaysia and Ruffa Gutierrez in the Philippines.

Both of them are investors in iflix, and they are ambassadors for the product. Each of their social media reach is substantially higher than any traditional media outlet in either country.

What’s happening in many of these emerging markets is that social media and celebrity influencers is one of the biggest drivers of awareness and preference so we have been able to find actors and actresses who love what they we’re doing, have seen the entertainment world changing and wanted to be investors and part of it.

Have brands shown an interest in advertising on iflix?

Yes, but no customer has ever asked to have ads inserted in the product. Our sense is if the content is good enough they will pay for it. If you interrupt and degrade the experience with ads they are less likely to pay. The best customer experience is no advertising.

iflix chairman and Catcha Group co-founder Patrick Grove has been quoted as saying iflix was launched to combat rampant piracy in the region. What’s the story behind that?

Catcha Group was approach by Evolution Media Capita, an affiliate of CAA (Creative Artists Agency) which is the biggest creative artist agency and the biggest and strongest talent management company in the world. They manage most of the Hollywood talent relationships, finance an enormous number of movies, and package up most the recent shows.

Grove

Patrick Grove

They have what they call an emerging markets problem. The fastest growing economic influence in the world is the growing middle class in emerging markets but tut the average revenue they make per show and per customer in those emerging markets is zero because piracy has been so prevalent over so many generations

It has been generationally true that I can walk into any store in KL, in Bangkok, in Indonesia and buy a pirated DVD for about nine or 10 Ringgit a disc, so binge watching has been going for years in Asia.

The message was if this traditional physical piracy moves to digital piracy then we will never have a market in the fastest growing markets in the world.

Can you elaborate on the piracy issue? Why would someone stop watching pirated content and start paying for it?

Our view is that long term value for our business is about shifting a generation of piracy into legal services.

It’s a not moral choice for people, it’s a very pragmatic decision around ease of access and features. If you can build a product that is better than piracy, 92 per cent of customers say they would happily pay.

But it must be more immediate, faster and have no viruses. People must be able to press play within two seconds, and have it play immediately no matter which country they are in. If you can’t do that people won’t pay.

But to shift a deeply ingrained “pirate” mindset is a major challenge?

We believe we can build a product that is better than piracy very easily. In a market like Australia, piracy is a free phenomenon. There wasn’t really paid piracy.

In Southeast Asia, however, piracy is buying the DVD disc so we are trying to migrate paid physical piracy.

The average basket size is three discs which is 30 Ringgit (US$9) and the average repeat purchase is once per month. So people are spending about US$10 per month on pirated content.

Our view is that they’ve got to get it legally for the price of a single illegal DVD. That’s the proposition.

We won’t get everybody. But for the vast majority of users who just want access to great entertainment and piracy has been their only way to get it…..

Also, paid TV in most of these countries is relatively very expensive for the average disposable income. So for a lot of these people they haven’t had an affordable means of accessing this content.

What was your approach to pricing the product?

There are two ways of pricing. One way is saying how much can I get away with charging and in most of these markets there’s 500,000 or 600,000 people who could afford to pay you $8, $9 or $10 a month (US). But there’s about 10 million who can afford to pay $2 or $3 a month.

We are aggressively pricing down and bundling with telcos in a way that means there is no additional charge to a customer and just part of their existing telco package.

You mention telcos. The Philippine Long Distance Telephone Company (PLDT) has invested in iflix. How important a role are telcos playing in your growth?

Telcos are critical. Less than one per cent of people in our markets have a credit card and most people who do have one don’t like putting it online because trust is a massive issue in these countries, so we are pretty deep with most of the telcos in most markets.

PLDTPLDT have 75m mobile customers of which only 13m are smartphone users and even less are data users so the company wants to create a reason for them to get data.

They are saying listen, include iflix as part of the subsection, connect to data plan and we’ll give you five gigabytes of data including iflix for literally 90c.

They have built the infrastructure and now they are trying to activate the next generation.

How does that work financially for iflix?

Most telcos are willing to bear the cost of iflix in order to activate usage. Churn in most of Southeast Asia from one telco to another is between 40 and 60 per cent a year. If they can give a customer a reason to stay on their network it works for them.

We’ll make announcements with two more telcos, one Malaysia and one in Thailand over the next few weeks.

There is clearly potential in such emerging markets but, piracy apart, there must also be severe barriers to growth?

There are huge issues. All great businesses are full of really hard word and we are no different. The infrastructure is still mixed. In a lot of countries you are still talking about fairly poor 3G connection and despite low prices people still have extraordinarily high expectations.

Collecting money is another huge issue. Because credit card penetration is very low we are launching cash on delivery in the Philippines and Malaysia this week where we will send someone around on a bike to collect 10 Ringgit in order to give you access to an online video on demand service.

Surely that lack of infrastructure going to hamper your growth?

We have two time horizons. What are we going to get done in 30 days, and what the future will look like in 30 years. And you need to be aligned with shareholders who share the same long term view.

Over the journey of iflix, to be successful it will ultimately take investments of hundreds of millions of dollars. It’s not a small enterprise and we are always talking to investors, banks and telcos so I don’t think the capital raising process ever stops.Our view has been to work with very big strategic partners that have vested interest in helping us create the market.

Emerging markets have a tendency of leapfrogging mature markets. We used to think of the world as ‘I’ve got PC, then a laptop, then a phone’.

With emerging markets they go straight to phone, and most of them will never get a laptop and never get a PC.

As an example, Australia has been debating the national broadband network (NBN) for 10 years. This week, in a Bangkok Mall, you can get free public wifi at 80 megabits a second. Australia spent a decade debating an infrastructure plan for the country which we may deliver 10 to 20 megabits a second.

Emerging markets are building fibre for the first time, they are not trying to convert old copper networks.

You have to work very deeply on the technology and infrastructure with telcos in the short term to make a great experience. And that’s hard work to go telco by telco, country by country.

It’s hard but we like it. If it wasn’t hard, everyone would do it.

Apart from Singtel-backed Hooq, none of the bigger players have made a play in Southeast Asia. Why do you think that it?

Big global companies don’t focus on the markets because they’re too hard. If you are a global company in the US, the idea of putting hundreds of people on the street on bikes to collect cash…you’re just never going to do it.

The thing we love is that all these hard problems are barriers to entry, it’s messy.

We kind of joke that it’s not a boxing match, it’s like a knuckle fight, it’s a knife fight and so we love these problems.

So you are already building a presence in Malaysia, Philippines and soon Thailand. What expansion plans to you have?

The markets we think about after hopefully conquering Southeast Asia are similar markets in the Middle East and I suspect Africa. It’s a near term goal.

The problems we have found that we are solving are unique to emerging markets but they are not unique to Asia. Infrastructure, technology, content, how to deal to deal with subscriptions. It is the same in Nigeria as it is in Philippines.

Why not Singapore or India?

Singapore to Southeast Asia is like Dubai to the Middle East. They happen to be in the same area but they couldn’t be more different.

Singapore is a largely international, highly sophisticated mature market and it’s quite a small prize. There are more people in urban KL than there are in Singapore so we are focusing on the big markets.

We like the markets that other people think are too hard. The challenge in markets like India and China is there are often so many people clamoring over the investment opportunity that often no winner ever really emerges.

What is your longer term vision for the company and where do you see the future of the TV/streaming entertainment?

The vision for us is how to get the world’s best content to emerging markets at a price that is less than the price of a pirated DVD.

There is clearly a very addressable market opportunity. So you look at it and you say it’s worth my while making a very significant investment to get there.

In 15-20 years there will are only two forms of entertainment. Immediate time intensive linear and everything else is on demand on the internet. At that point you have a very substantial market and a very substantial business.

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