Netflix (NASDAQ:NFLX) is already facing regulatory trouble and Internet Service Provider rebellion in Indonesia. Now, leading telecom Telekom Indonesia (NYSE:TLK) is turning up the heat with the arrival of fresh competition -- while still denying its broadband subscribers access to Netflix services.
Seems like it's time for Netflix to put its back into figuring out the Indonesian market, before these 255 million potential Netflix customers get addicted to a rival service.
In April, Telkom Indonesia plans to introduce Southeast Asian video streaming service Hooq to its domestic market. Already running in Thailand, India, and the Philippines, Hooq has not yet made the leap to Indonesia. When Telkom flips the switch, the island nation will become Hooq's second-largest addressable market.
The service is not an exact clone of Netflix. It is arguably superior in some ways, even.
- The content catalog may actually be larger. Hooq boasts more than 10,000 titles today, while U.S. Netflix subscribers have to make do with just 4,300 movies and 1,200 TV series.
- Hooq offers a Netflix-style streaming interface, but also allows subscribers to download up to five titles per month for offline viewing. Netflix has no plans to introduce downloading options.
- Netflix plans tend to cost more than the Hooq alternative. In India, Netflix offerings start at 500 rupees for a single-stream account in standard definition, ranging up to 800 rupees for a four-screen, high-definition plan. The only Hooq plan in India runs 249 rupees per month, and it's included for free in local partner Airtel's Wynk Movies mobile app. The situation is very similar in Thailand and the Philippines, and Indonesian Hooq prices should also run very low.
- While Netflix stands alone and fights for every content license, Singapore-based start-up Hooq has some heavyweight backers. On the content side, both Sony (NYSE:SNE) and Time Warner (NYSE:TWX) have invested their own money and content catalogs to boost the service. Technology and connectivity comes from majority owner Singtel (NASDAQOTH:SGAPY) -- another giant telecom with over 500 million subscribers across Asia.
In other words, Netflix has a tough row to hoe here. Hooq is a serious competitor. The censorship in Indonesia makes for an even tougher situation, and having the nation's largest telecom on Hooq's side really puts the cherry on top.
But that doesn't mean that the American company should give up on this important market.
Indonesia is the fourth-largest nation in the world, counting by population. According to the World Bank, it's also the eighth-largest economy, ahead of major powers like France and the U.K. We're talking about an important international force, a modern economy, and a stable (if somewhat heavy-handed) system of government. This isn't a market to ignore just because the locals are putting up a fight.
Instead, Netflix needs to put the pedal to the metal here. It isn't the company's place to set or adjust national censorship policies around the world, although that could become a pleasant side effect of giving people wider access to other cultures and new ideas. No, Netflix simply needs to adjust to the demands of nearly 200 governments and offer local catalogs that fit within established legal and regulatory frameworks.
Doing that in Indonesia means supplying plenty of locally produced material, as well as cleaning out materials deemed offensive by Indonesian censors. In some cases, that could be done with deeper cuts and the occasional blur mosaic. In others, some shows and films simply might not work in a particular market. None of this is ideal, especially where the censored content is making serious points about the nature of violence, or sexuality, or religious freedom. But redacted material is still better than none at all.
Here's the best part of adjusting to the Indonesian demands: With this heavily scrubbed catalog in hand, it should be easy to overcome similar challenges in other censorship-heavy regimes. That should open doors across the Middle East and central Asia, and should give Netflix a stronger platform for getting a foot in the Chinese door.
The arrival of Hooq changes none of this.
Netflix is already accustomed to well-heeled and technically sophisticated competition, and has a long history of overcoming seemingly unstoppable rivals. The streaming platform may look simple, but is actually a marvel of efficient and fault-resistant technology wrapped in a fine-tuned user experience. And the Netflix catalog may have fewer titles than Hooq, but the Singaporean service is mostly built on relatively low-budget Bollywood films and Thai horror movies. In spite of Sony's and Time Warner's direct involvement, the overall quality difference should be obvious. Moreover, Hooq is already butting heads with Netflix in Thailand, India and the Philippines. It's not an entirely new threat.
The proof is in the pudding, as always. I expect Netflix representatives and executives to make frequent visits to Jakarta until the whole censorship situation is settled. Meanwhile, it's up to Hooq to grab as much land as possible while the Western competition is held back by regulators. That's Telkom Indonesia's window to exploit its own government-backed limits on what Netflix can do in this important market.
I can't wait to see this conflict simmering down, and how Netflix applies the lessons learned to other troublesome markets. Pass the popcorn.
Anders Bylund owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. The Fool also recommends Telkom Indonesia and Time Warner. Try any of our Foolish newsletter services free for 30 days.