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Iflix founder Patrick Grove says the internet-TV world is getting "highly confusing." (Courtesy of Iflix).
Business

The 'Asian Netflix' takes on the pirates

Iflix finds Asian niche and offers US and regional content

SINGAPORE -- Patrick Grove, chairman and co-founder of Sngapore-based internet-TV startup iflix, has developed a straightforward way to see what Asian consumers want to watch, but are not able to: Just look at what they are stealing.

"[Piracy happens] even in Singapore, where the rule of law is respected, and people have money. It's not that there's an issue paying 10 bucks. The majority of the surveys show it's about access," said Grove, 41, during an interview in his office above a shophouse in Singapore's Amoy Street. The space is decorated with enormous decals of iflix's biggest imports, including the U.S. series "Gotham," and "House."

Singaporean-born and mostly Australian-educated, Grove is a serial internet entrepreneur and chief executive of the multifaceted Catcha Group. He co-founded iflix in 2014 and launched the service, which allows subscribers to watch TV and movies on their phones, the following year. Initially targeting Malaysia and the Philippines, iflix is now available in most Southeast Asian markets. So far in 2017, it has launched in Pakistan, Vietnam, Kuwait and the United Arab Emirates.

Iflix is based on the belief that that these markets are poorly served by pay-TV, and that audiences will pay for good content, if it is made easy for them to do so.

"A show like 'Mr. Robot' was one of the most-watched shows in America last year, won shitloads of Emmys. No free-to-air network picked it up in Asia," because its tagline was both profane and political, Grove noted. "But it was a top-five show, and it was being pirated like crazy," he added.

Research has consistently shown that it is a desire for access, not just greed, that drives piracy, making it a great indicator of what people want, but cannot get. Iflix monitors piracy traffic, sometimes by asking the internet service providers, sometimes just by looking at the major host sites.

"Some of the piracy sites will tell you: Top-30 downloads this month. They have little rankings," he said. "We can see that 'Mr. Robot' is being pirated like crazy in Malaysia, the Philippines, Indonesia. So we went and acquired the rights to the show in Southeast Asia. We paid a fair price, but it was not prohibitive money."

The arithmetic that drives iflix's model is quite straightforward. The U.S. produces around 1,200 shows a year, Grove said. Southeast Asian networks only buy a couple of hundred of these programs, leaving 80% unsold.

"We've become a great outlet for putting up a lot of stuff that you might have heard of the name of the show, you might have heard of the stars, but you can't get it anywhere legally in Southeast Asia. But the economics make sense because the shows are unsold. It's hard for the studios to say 'you need to give me a big, fat check for the show,' because it's unsold."

The company has piggybacked on the rapid growth of smartphones in these rapidly emerging markets. It has negotiated deals with mobile networks to bundle its service with their contracts, so that for a few extra dollars a month, users get access to content -- both local and international -- in a legal, simple format.

Smartphone penetration in Malaysia and Indonesia is around 50%, according to data from the GSMA, a mobile phone trade association. The Philippines lags behind, with around 30% penetration, but is catching up. The region's millennials are voracious users of social media and consumers of content, but their viewing habits are skewed by a lack of available, affordable content, Grove noted.

Evolving market

"Go to the average college kid in emerging markets: 'What's TV to you?' They never say free-to-air, they never say cable, sometimes it's videos on YouTube, Facebook now, sometimes it's Instagram now. I think the internet TV world is getting highly fragmented, highly confusing," Grove said.

"Cable penetration is so small, and [content] is not really translated into local language, so you have this huge... opportunity where because of the smartphone revolution where everyone has a TV in their hand. Not everyone has a TV in their living room, but everyone has a TV in their hand."

The company's rapid expansion -- it now has more than 4 million subscribers -- shows that there is money to be made by creating formal businesses that bring a degree of order to the atomized, informal nature of internet TV in emerging markets. The company has brought in investment from the pay-TV giant Sky, as well as from venture capital funds and telecoms operators around the region.

The global market leader in internet TV, Netflix is expanding into emerging Asia, but Grove thinks that their price point will be too high for the majority of consumers. Unlike Netflix, whose catalogue is predominantly U.S.-made shows, iflix shows an approximately equal mix of English language shows, regional -- predominantly Japanese and Korean -- programming, and local content. The company has been signing up, on average, two studios a week since its launch, and has begun to commission its own shows, including a talk show in the Philippines and a stand-up comedy show in Malaysia, to fill the gaps in its catalogue. This diversity of sources means that no studio can "put a gun to [their] head" and demand more money for content, Grove noted.

Local content is often as popular, or even more so, than big-budget U.S. shows, and local producers like the platform, as it helps them overcome their own issues with piracy. Typically, a movie or TV studio makes money through several "windows." First, they release it to pay-TV or cinemas, then to airlines for in-flight entertainment, then through several levels of television and DVD distribution deals, each for a lower price.

"Piracy is so rampant in this part of the world that this established window doesn't exist. So if a movie is in a cinema in Indonesia and does really well, for say four weeks, once it leaves the cinema it's going to get pirated -- whether that's digital piracy or DVD piracy," Grove said. "So from the minute it comes out of the cinema, distributors and owners are willing to talk to people like us and say: 'Would you like it straight away?,' because the value of that asset is depreciating so much.

"In Indonesia, we're getting movies within one month of them coming out. We're in this interesting scenario where we're creating all these opportunities that don't exist for Netflix in America, because of the structural dynamics of the industry."

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