- iflix – the newest media incumbent in the local and regional media space – has finally soft-launched its product in Malaysia with a private preview of its potentially market-disruptive product over the weekend.

- iflix is Catcha’s Group’s newest venture into IPTV Video On Demand (VOD), closely mimicking the business model of the US-based IPTV VOD giant, Netflix. However, iflix differentiates itself by focusing on mobile content.

- iflix’s value proposition: for a low monthly fee, subscribers will have access to over 10,000 hours of top content that can be downloaded onto up to five devices – be it their mobile, tablet, computer or television set – for their viewing anytime and anywhere.

- In a report by The Edge, Catcha Group’s CEO and co-founder Patrick Grove said that it is eyeing 1mil iflix subscribers by the year-end in the Asean region. It expects 50,000 subscribers within the first month of their official launch (which is expected to happen in the coming weeks).

- With the rise of mobile media consumption, Grove is optimistic that iflix will be able to achieve a 40% penetration rate or 120 million subscribers out of the Asean region’s 300 million smartphone users in the next seven years. After launching in Malaysia, iflix will expand to the Philippines and then to the rest of Asean.

- Note that iflix has tie-ups with influential partners such as 20th Century Fox, Warner Bros International and the BBC. It will be announcing more partnerships with Hollywood studios in the coming weeks. Grove is also in talks with the Media Prima Group to licence some of its local content. The content available to iflix subscribers will consist of 40% top-tier English content from the US, 30% Asian regional content, and 30% local Malay content.

- While the exact launch price for iflix is not yet firmed up, its service will be cheaper than that of Netflix and music streaming service, Spotify. Netflix charges ~USD10 (RM36) while Spotify charges RM15 per user per month.

- We also noted that similar competitors are catching on – iflix’s nearest competitor in this region is Hooq, a collaboration between Singtel Group, Sony Pictures and Warner Bros. Earlier this year, Hooq launched its IPTV VOD services in the Philippines. However, based on our checks, we note that there have been multiple complaints of customer dissatisfaction with its reliability.

- We remain neutral on this news at this point for the following reasons:

(1) Product execution and consumer trust is crucial – While through our private preview of iflix, we noted a decent user interface as well as immediate streaming for its content, we are yet to see its performance when it goes live to the masses. Also, the much touted download-friendly capability of the iflix product is still undergoing development.

(2) Infrastructure may not be fully in place – TM, the largest provider of fixed broadband services in Malaysia, estimates that out of its 2.4mil subscribers, only ~1mil have high speed broadband (>4Mbps). While we know that a minimum of 5Mbps internet speed is recommended for Astro’s IPTV, the minimum speed required for iflix is yet to be determined.

(3) Structural shift in consumer mindset – It is uncertain whether consumers are ready to pay a small fee to watch programmes that they are be able to download for free and with a wider variety. However, iflix argues that while piracy is rampant, their proposition is a stronger one as it is premised on a safer and more reliable content platform for a low fee.

(4) Monopoly of the Paid TV market – Astro commands a monopoly over the Paid TV industry as well as its own brand of mobile VOD services, the Astro on the Go (AOTG). AOTG however, is more limited in its content range than iflix and does not have any mobile-download capability at this time. Another downside of AOTG is that it requires users to have an existing Astro subscription, which is significantly more expensive than an iflix subscription.

- Looking forward, if iflix takes off on a large scale in Malaysia, it will be complementary to the FTA and paid TV platforms. However, looking back on the historical trend after the launch of Netflix in the US, there is a risk of some viewership dilution in both the FTA and Paid TV segments, particularly so with a growing and younger generation of smartphone users.

- In the long term, we think that IPTV VOD is the next wave of new media that will compete with the larger TV media players such as Media Prima (HOLD, FV: RM1.70/share) and Astro Malaysia (HOLD, FV: RM3.48/share). On the other hand, Media Prima should see some small benefit in the near term from the monetisation of its locally-developed content to iflix.

Source: AmeSecurities Research - 28 May 2015