John Drinnan: Countdown on for Netflix

Netflix sees New Zealand as a small part of its jigsaw for a global TV service. Photo / AP

Netflix is expected to launch next month bringing New Zealand more directly into the corporate world of global pay television.

The global scale of the company - with a listed value of $28.78 billion and available in 40 countries - creates a new dynamic for New Zealand that until last year was dominated by the near monopoly of Sky TV.

Netflix chief product officer Neil Hunt says "size matters" when competing for TV programme rights against kiwi competitors.

While Aussie Quickflix, Spark and Sky TV are focused on local revenue for subscription video on demand, Netflix sees New Zealand as a small part of its jigsaw for a global TV service.

It is a challenge for local SVOD services - such as Spark's Lightbox and recently announced Sky TV's Neon - and internet TV is a long term threat for companies like Sky TV.

Netflix competes for price, content and distribution and it does not need to make a local profit. Rather the company judges performance on the global returns of its streamed titles, and not the return on investment for individual territories.

For consumers it could be good news but for local entertainment companies it will be a tough ask.

Netflix's Neil Hunt said that Netflix has deep pockets and is direct in acknowledging that that gives it an advantage negotiating with Hollywood studios for TV rights.

On the face of it the local listed pay TV companies - such as listed Spark and Sky TV - face a juggernaut.

Sky TV with Neon is also a big local customer for studios, and will have some leverage. The Netflix business model has nobody on the ground in New Zealand or Australia.

Could it be that being local counts for something in the new world of pay TV?

Spark recently began giving away Lightbox with its Xtra broadband package effectively using it as a loss leader promotion.

It has increased its initial investment in Lightbox from $20 million up to $35 million which is relatively small for a company the size of Spark.

Netflix puts pressure on the availability and price of content saying that ultimately it aims to have the same content available around the world.

Netflix shows like "House of Cards" that have made a big splash internationally.

The system of individual territories for rights is starting to break down in our small corner of the TV world. Traditionally New Zealand and Australian TV rights have been negotiated separately, in part because the separate market ensures more revenue for studios.

Hunt says - and other NZ broadcasting sources confirm - that Hollywood studios are negotiating subscription video on demand deals for both countries and that appears to give an advantage to those like Netflix and the Australian firm operates in both.

Hunt meantime talks up the role of Netflix in commissioning its own content where it is guaranteed exclusive rights and shows like House of Cards that have made a big splash internationally.

So far this year Netflix has made 60 shows - it will be surprising if they all have the impact of House of Cards.

The reality is that TV programme makers are not guaranteed mainstream success.

But Netflix also has a distribution advantage over Quickflix, Lightbox and Neon.

It will hit the ground running in March.

It has already negotiated dealing with smart TV manufacturers and installed its apps into many of the devices such as tablets and mobile phones.

According to Hunt many of the smart TVs bought in New Zealand over the past two years have a Netflix app installed that can be easily activated online.

Meanwhile Sky and Spark are introducing new apps slowly because of the high development cost for a relatively small market. Both companies have shown that New Zealand broadband is technically up to providing streamed SVOD services.

"I don't think broadband is an issue here," said Netflix's Hunt.

"We have dealt with much weaker broadband in Brazil and Mexico with 1 megabyte per second - where in New Zealand it is around 5 mps.

Netflix has developed its streaming technology.

"We stream in parallel from several different servers and do not just rely on one server being available. So if a server is blocked or jammed we start using the other two."

One anomaly in the new local service is that Netflix will be competing with itself.

In the lead-up to its arrival New Zealand consumers have been accessing the Netflix US service - and other TV streaming sites - using "backdoor" or Virtual Private Network (VPN) sites, allowing them to watch superior libraries at prices kept low because of the size of the market.

Watch: Netflix looks for Emmy wins but already leads online

In theory this could continue after the bona fide New Zealand service starts but Netflix is not in any rush to shut down its backdoor customers.

"What can I say?" Hunt says.

"Where we know about a VPN we do something about it but in general it is not something we have a lot of ability to deal with. New Zealand broadcasters such as Sky TVNZ and MediaWorks have complained that VPN allows people to see shows they bought NZ exclusive rights to.

It seems that studios have been in no rush to police VPNs either.

Hunt said that the problem of VPNs has been overstated and that when its bona-fide service is established many customers will prefer not to go to the trouble of backdoor subscription in the US.

Under the Netflix strategy the NZ service will get bigger and richer and better, he said.

That is unless local services can find some way to stop the juggernaut from taking over the corporate pay market that only opened up six months ago with the launch of Spark's Lightbox.