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It’s been nearly five years of iflix. What are some of the things that you got right and wrong?

“Building a start-up in an emerging market – particularly in a very capital intensive industry – is much tougher than I had ever feared; but also more rewarding than I had hoped. We got the premise right: millennials are switching off linear television and mobile is the TV of the future.

“We also got right the fact that we’d be able to solve for mobile data costs. We had a data driven hypothesis that all piracy is of western content. Our belief was people want more access to western content. And the lack of distribution and pay TV meant it wasn’t reaching people.

“So we built our business for the first few years on such content. But we found that is only true for about a million or half a million people in every country. 98.5% of the population want better local television.

“So, about 18 months ago, we started pivoting much more to local content, movies, series and news. The impact has been profound.

“It makes you relish the unique cultural differences between the markets. You realise South East Asia has very little in common: it’s five or six very different countries that need their own unique content experiences.

“It has taken five years of humbling learnings to get to this point.”

What previously held assumptions did you have to discard?

“We assumed that the industries that we work with – whether telecom or content studios – would embrace the change faster than they have.

“We thought governments would do something about piracy, but they haven’t at all. We thought that broadband would become significant, but it hasn’t. 4G and even 3G has become so good, people don’t need a fixed line connection anymore.

“We also assumed western and global media companies who see the world as a subset of America, would evolve: but they haven’t.”

Why did you opt out of Africa?

“When we were building a business around western content, it was highly scalable. But it was not very defensible, since other people could do the same thing.

“The local content business is very defensible, but not very scalable. And so, we sold our African business and pared down in the Middle East. Instead, we really doubled down on South East Asia. Indonesia is our number one market. It takes 50% of the investment. Malaysia, the Philippines and all the other markets are almost like venture capital bets in the long term.”

What do you look for in your content partnerships apart from investments?

“We look for preferred access to content and to share data between brands. We are moving from a relationship where we merely buy content to one built on our understanding of the audiences for specific products.

“For example, Japanese content is not well distributed in South East Asia. Korean content is hugely popular. So we test all different genres of Japanese content in all the markets where Korean content works, to find new audiences. And that’s the power of internet television. It’s not something you could do traditionally.

“We spent our last 12 months building much deeper relationships with Asian content owners. The three most recent are Yoshimoto the oldest, most prestigious media company in Japan; JTBC the HBO of Korea which has had the number one and number three shows consistently and MNC which is the biggest media company in Indonesia. They have all come in as investors and content partners.”

How engaged are the audiences on iflix? How many hours do they spend on it?

“We have 20% to 25% of the users just trying to learn. They are searching, exploring, starting and stopping; trying to understand. That is a big chunk of the first month, especially for people over the age of 25 or 30.

“98% of our customers are prepaid mobile subscribers who don’t have data every day. They binge on the days they watch. The average viewing session is between two and a half and three hours a day. But then you won’t have them tuning in again, for a while.

“The major strategic priority for us is simplifying those mobile bundles. The average customer watches between one and a half to three times a week, for one and a half to three hours a day.”

When it comes to the advertising supported video on demand (AVOD) audience, how many ads do they see every hour on the platform?

“We are at four ads per hour or two minutes of advertising. We keep testing and optimising. What we’ve learnt is pre-roll ads are highly interruptive. People want to test a show and get started. And in the very late part of the episode, ads are very upsetting. There is actually a magic spot at the end of the first third of the content and before the start of the last third of the content.

“To give you an idea of ad density, television historically was about 16 minutes an hour. Hulu is about 22 ads an hour. We are running about four 30 second ads an hour and have had no impact on engagement. This will never be as impactful as TV: the idea of 16 minutes an hour is just insane.

“What we have found is people are very price sensitive. Given the choice between four or five ads an hour and a dollar a month, most people take the ads. We have just started testing with our telco partners: if you buy iflix with a cheap data bundle, you are a VIP subscriber but you still get ads.

“Ultimately, the product breaks down into a significant number of choices. People are buying it by the show, the hour, the weekend or the episode. The more choices, the better.

“The challenge historically in the media industry is that the owner of content will sell you not just the content but try to control how it is distributed. They really struggle with flexible pricing for customers. It’s an interesting battle that will unfold over the next few years between the big western studios and their customers on the best way to buy things.

“The breakthrough in music was Apple going to 99 cents per song and that eventually enabled Spotify. But it took labels a while to get their heads around that business model. We are at that point of inflection. Large global studios will have to decide: are we going to meet the needs of the customer or will they keep watching pirated content?”

How have you worked out a viable payment mechanism, considering how iflix has a price sensitive audience?

“The free tier helps people understand the product before asking them to pay. We look at Netflix, Disney and HBO and they are products built for Apple owners, for wealthy people with credit cards and who are quite sophisticated around payment mechanisms. There are only 1% or 2% of those in South East Asia.

“I would say a little under 10% of the audience pays us directly. 50% to 60% of our customers are on a telco bundle and the balance are free.

“It took us three years to convince content studios and owners that we needed a free tier, to work well. It was only when we began producing a significant volume of our own content that we got leverage with the studios.

“That has driven 300% growth in the last 12 months. We needed people to get comfortable with using the product before we start hitting them over the head with payments.

“The telco ecosystem has embraced video in a big way. You don’t see this much in Singapore, but in most South East Asian markets, when you buy data from telcos, they bundle iflix. So customers make a single cash purchase. All the ride sharing apps like Grab and Gojek have been extraordinarily well funded. And they are moving into mobile wallets very quickly.

“In China for instance, it used to be completely piracy-driven and completely free. Mobile wallets took off and in three years, they went from nobody paying to 140 million paying customers among the top players. South East Asia is not China. The people here will pay less and for not as many days per month.

“In our key markets, customers put in 50 cents to 90 cents on the account every two or three days. Even if they spend $10 a month, there is never two dollars there for you to sell them a product at that price point.

“But the scale is enormous. The ease of payments using mobile wallets is transformational and that will shift the landscape in the next few years.”

Is AVOD likely to be the dominant model?

“I don’t think it will become dominant. A good balanced business is like iQiyi in China where it is split evenly between paid and advertiser-funded. Or the Spotify business model: get people off piracy and onto free. Build addiction and then get them to pay, whether it’s for a day or a month.

“The total addressable market in South East Asia is 600 million people. We assume iflix will get to 15% of the market – maybe 100 million to 200 million customers. That’s our goal for the next two or three years. And we may have 30 million paying something.

“For us, that is a secondary question. If you can entertain people the business model will take care of itself.”

A fairly persistent critique of iflix is that it is burning through a lot of cash and is not sustainable – how do you respond to that?

“The question was probably historically correct. Trying to build a business on western content, within the rules of the studio partners turned out to be unsustainable.

“People have been sceptical of an entrepreneurial startup disrupting the media business. Sceptical that we’d reach a million customers. As an entrepreneur, you have to block out the criticism, focus on the execution and to trust that you are right. And then you are not. And then, you have to pivot, learn and grow.

“Where some of that scepticism comes from is as an entrepreneurial company, we have no dogma on what the industry should be. We just care about what customers want and are willing to deliver that. We keep learning and getting closer to the model.

“What is clear to me is that when you are entertaining an entire generation of young millennials in South East Asia, you have a viable and valuable business.”

In a previous interview, you mentioned the $4.5 billion of ad dollars being spent on TV. How much of that do you see coming your way? Do marketers have any concerns or misgivings about iflix?

“Over time, a 100% of media will become digital. The power of targeted media is so much better than the alternative.

“Anecdotally, we all know millennials don’t go home and watch TV. And yet free to air dollars in South East Asia are still going up. I don’t know what the trajectory will be. But soon a majority of the money will move. The audience will grow at its own pace and over time, the dollars will follow. We have enough data to say that on most major shows, there are as many people watching the digital version as the TV version. 

“Right now, digital media and video equals YouTube in South East Asia. We know that putting your advertising around cat videos is not a wonderful brand experience. We think the industry needs a premium digital TV product and hope iflix is it.

“We’ve only been advertising for six months. It is TV on the internet. Take your existing TV brand and for every campaign, we offer the same quality of content. There is certainly a tendency for marketers to see TV as premium and digital as commodity. And the programmatic industry drives that.

“So, we are fighting pretty hard. We have a great partnership with Garnier who sponsored an e-gaming event: a live event and TV campaign. It is very traditional TV advertising going to where millennials have already moved.

“Integrated campaigns that use the telco’s existing business data with iflix audience insights is where we will move the dial.”

The post ‘Netflix, HBO and Disney are built for the wealthy; only 1% or 2% of South East Asia’ – iflix CEO Mark Britt appeared first on Mumbrella Asia.