Boom or bust: Making sense of the video-streaming market in Southeast Asia

Over the past few months, there has been a flurry of activity within the video-streaming space in Southeast Asia. Some news was positive, such as GoPlay receiving its first independent funding round and Disney+ ramping up its hiring as it looks to expand into the region.

However, these announcements came around the same time as the shocking news of Hooq’s liquidation and Iflix’s sale to Tencent. Bearing these new developments in mind, I’d like to highlight the themes at play and examine whether streaming companies in Southeast Asia can work out a sustainable business model to turn a profit.

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The Southeast Asian market remains highly attractive

Similar to other mega-segments such as ride-hailing, mobile wallets, and ecommerce, video streaming is a strong beneficiary of key macroeconomic tailwinds that include a growing middle class and a tech-savvy population, as well as rising internet and smartphone penetration. This means that the potential spoils for winners are enormous in this market: According to Media Asia Partners, the online video industry in Asia Pacific (excluding China) will grow at roughly 15% per year to reach US$23 billion dollars by 2024.

Large streaming players like Netflix and HBO look to expand and grow in this region, as their home markets have become increasingly saturated. Choosing to enter a high-growth region not only accelerates the top line, but also improves overall profitability by reducing content costs per subscriber and increasing bargaining power against production houses.

Similarly, regional powerhouses such as Gojek are looking to branch out into video streaming as a way to grow their all-encompassing ecosystems, engage users for longer, and increase customer lifetime value on their platforms.

But the video-streaming model is fundamentally broken

To understand why the current model is broken, we first have to go back to the heyday of Western online video streaming.

Netflix embodied absolute convenience as a content aggregator. With its flat monthly fee, viewers could gain access to thousands of hours of content from any device, at any time, right at their fingertips.

However, as more and more companies started to jump on the bandwagon – some of which were content producers wanting to get a piece of the action – players needed a way to differentiate themselves. Unfortunately, that caused a shift in strategy toward developing or acquiring exclusive content, triggering an arms race for blockbuster content. Netflix started leaning heavily toward original programming, and Disney retaliated by pulling its content from the streaming site in 2019.

This series of actions cascaded into a vicious cycle that created more inefficiencies and arguably left all parties worse off than before. Netflix’s library is now a fraction of what it used to be. In addition, higher investments in original content has led to rising subscription prices.

In light of this “shotgun” approach to content development, most originals are likely to be pulled if viewership is low, lending unsatisfactory endings to unsuccessful shows and often leaving viewers frustrated. For content studios, these exclusive deals also mean their content is locked within a single platform, and studios are unable to maximize consumer reach and potential monetization.

With less choices in each platform, consumers now require more than one subscription plan to multiple video-streaming platforms at higher rates – which, strangely enough, is starting to add up to the cost of traditional cable TV. In fact, piracy has been creeping back again after steady years of decline, according to a recent report.

The relevance to the Southeast Asian market is twofold. First, some of these players, like Netflix and HBO, are operating in this market with little to no modification in their global strategy. Second, most Asian-based operators are heavily influenced by the West and look toward these bigger boys for a “successful” playbook.

Fundamentally, video streaming is a scale business — a critical mass of subscribers is needed to eventually hit profitability. However, in a fragmented market without a consolidated viewer pool, the future may not be so bright unless there is some form of market rationalization.

Understanding of the local dynamics is key