As Australia reaches peak streaming, pressure mounts for local content quotas

Here’s a sign of the times: last year, more adult Australians streamed television than watched it as it was broadcast. This year it looks like we’re getting even closer to peak streaming, with reports that about 80% of Australian households now subscribe to one or more services. 

It’s disrupting Australia’s big creative industries like drama production and sport — and cosy local oligopolies like broadcasting. It’s another looming policy challenge for the federal government; the industry is pushing for intervention this year.

The threat comes from the power of scale brought by the large US players to (again) dominate what we watch. It’s a potential repeat of the market failure of 1960s television that drove the Whitlam era package of reforms of content quotas, artist protections and funding, which in turn kicked off Australia’s cultural renaissance in the 1970s.

The industry wants action around the proposed national cultural policy to ensure the US giants pay for Australian production.

Right now, competition for market growth and market share is standing in for government action. Last week’s annual drama report by Screen Australia found that $445 million was spent on 29 Australian general subscription TV and subscription-video-on-demand (SVOD) dramas. 

The Screen Producers Association reckons the local and foreign subscription services have contributed an extra $186 million, which takes them close to the 20% of drama-related revenues that the industry has been lobbying successive governments to enforce.

Broadcasters want more, including an adaptation of the anti-siphoning laws (which regulate public access to sports broadcasts) to rope in streaming services, and a requirement that smart TVs sold in Australia prioritise the local broadcast-video-on-demand (BVOD) offerings (like Nine Now, Seven Plus or iview) in the app carousel.

Sport is already big on streaming. Foxtel’s Kayo with local sports like NRL, AFL and cricket reported 1.26 million paying subscribers this month, up from 1.06 million a year ago. The bad news is it’s cannibalising its pay TV where residential subscribers dropped from 1.6 million to 1.4 million.

Meanwhile, Optus Sport, which uses English Premier League streaming to drive its phones, has reported 922,000 subscribers, down from 1 million off a monthly price increase from about $15 to match Kayo’s $25.

In drama, the US giants dominate. Out of 9.8 million Australian households, Netflix has 6.3 million subscribers, Amazon Prime has 4.1 million and Disney has 3 million. (Password sharing between households suggests it could be more, although we won’t know until Netflix starts charging for access across different addresses next year.)

Nine’s Stan comes in fourth with 2.5 million, and Foxtel’s low-cost Binge lags at 1.3 million, just ahead of Ten’s Paramount+ at 1.1 million. (News Corp boosts its numbers by aggregating Binge, Kayo and Foxtel, but subscriptions are not the same as subscribers.)

There’s more to come — the US broadcast networks are launching their own products: like Viacom’s Paramount+ (already available here through its ownership of Ten), NBC’s Peacock, Discovery and HBO. Locals Stan and Foxtel will be hoping they opt to continue to license through the local players rather than compete directly.

The shared passwords crackdown aside, history suggests there’s still room for growth. Video-cassette recorders (remember them?) raced to about 70% penetration in 1990, before crawling to about 90% a decade later. Expect a similar slower streaming growth.

The real growth is likely to come from time on service, and that will come at the direct cost of linear broadcast — with a direct threat to audience-based advertising income.

The streamers may not benefit directly. Netflix is experimenting with a low-cost, ad-supported tier and Disney+ is following suit in December. How prepared are subscribers to pay for the privilege of watching ads? Expectation: not very.

The industry is expecting consolidation. Although Netflix is reporting a profit (and Nine says Stan also makes money), Disney+ is eating its parent company. Over the weekend, the company said its streaming arm had an operating loss of A$2.2 billion just in the three months to the end of September. It’s responding with cost cuts including lay-offs.

It’s putting pressure on the federal government to bring in a floor on Australian content before it, too, falls victim to cuts driven out of Los Angeles.