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Will Netflix succeed in Kenya?

U.S. internet streaming giant Netflix is now in Kenya. However, as interesting as this launch is, the fundamentals in the market are not too encouraging. It is clear that Netflix will need a very unique marketing strategy in order to penetrate the Kenyan market.

The demand for foreign and premium content has been on an upward trend in Kenya over the past five years thanks in no small part to the rising middle class. Pay TV operators have naturally moved in to capitalize on this demand, as evidenced by the proliferation of service providers such as Zuku, DSTV and GoTV, among others. The latest entrant into this space is U.S. internet streaming giant Netflix.

Netflix’s entry into the market introduces a new dynamic. Unlike Pay TV, which is program-based, Netflix gives users the option to view content on-demand, whether on TV, smartphone, tablets, laptops or desk- top computers. Moreover, Netflix offers an entic- ing proposition for subscribers. The U.S. internet streaming service offers unlimited access to movies, doc- umentaries and series at monthly rates of between Sh815 and Sh1222. This is significantly lower than the rate cards of Kenyan pay TV firms Wananchi Group and MultiChoice, which offer Zuku and DSTV respec- tively.

To sweeten the pot, some of Netflix’s offerings are already widely popular in Kenya. Shows such as Narcos, for instance, which artisti- cally showcases the life of notorious Columbian drug lord Pablo Escobar, have become a global hit, including here in Kenya. This means that there is already some significant level of familiarity with Netflix shows in Kenya, a development that makes penetration much easier.

From this brief analysis, Netflix’s prospects in the Kenyan market appear good. Unfortunately, enter- ing into any market is never that that straightforward. The fundamen- tals in the Kenyan market do not currently support Netflix’ business model.


Serious impediments

Netflix’s business model is entirely dependent on high speed internet access. This is certainly not a problem for it in the U.S. and other markets in Europe, where it collectively has around 74 million subscribers. However, in Kenya, high speed internet is still a relatively new concept.

Granted, Kenya has high inter- net penetration levels in comparison to other African countries. Kenya’s internet penetration stands at 52.3 percent, according to statistics from the Communications Authority of
Kenya (CA) released in 2015. This is notably high when compared to penetration levels across the broader African continent “Kenya has achieved a conflu- ence of infrastructure and provision that has positioned it with the high- est growth in internet take-up com- pared to income per capita in Africa. It has effectively become an outlier in its internet take-up, and seen Nairobi join Johannesburg as one of Africa’s two regional internet hubs,” Ben Roberts, Liquid Telecom Kenya CEO said during a presentation on a report on Lifting barriers to internet development in Africa.

But internet penetration and high speed internet are two totally different things. High speed inter- net in Kenya is still out of reach because of costs. The Information Society Report 2014 released by United Nations agency, International Telecommunication Union (ITU), says that Kenyans have to spend 45 percent of their average monthly income in order to access high speed broadband internet on a month- ly basis. 45 percent is simply too expensive considering income is meant to meet other more immediate needs such as rent and food.

Due to the high cost of high speed internet, Netflix’s addressable mar- ket in Kenya is still highly restricted to a select few. In fact, the market for Pay TV is still considerably larger than the market for internet TV. This disparity in size of markets acts as a delay timer for Pay TV operators. It gives them enough time to prepare before internet TV operator Netflix becomes a formidable threat.

The challenges don’t end there for Netflix. A far more direct threat exists—movie vendors. There is no shortage of movie vendors in Kenya, especially in the bustling streets of Nairobi and other major urban areas. The latest movie or an entire season of up to 13 episodes of  any popular TV series is sold for just Sh50 by these vendors.

The number of movie shops lin- ing the streets of Nairobi bear tes- tament to just how lucrative this trade is. “Movies at 50/-” shops are sprouting up in every corner in town. The difference between Sh50 and Sh815—the minimum for a Netflix subscription—is substantially huge and it doesn’t take a genius to see just how big a threat this price dif- ferential is to Netflix.

It goes without saying that these movie shops pirate their mov- ies by downloading them off the internet without consent from the official movie publishers. But the alternative—buying originals—is not plausible, at least not here in Kenya where income levels still fall significantly short of income levels in markets such as the U.S. and Europe (where most people buy originals). Kenyans simply download pirated material with the caveat that they live in Kenya and there is no other option, at least not an affordable one.

Convincing people to watch pop- ular shows such as House of Cards for Sh800 and above while one can get the same show with same video quality for just sh50 will undoubted- ly be a hard sell for Netflix.

Netflix’s only hope is that Google clamps down on online pira- cy. Fortunately, Google is constantly taking advanced measures in this area. For instance, it periodically reviews its algorithm so that those searching for pirated content will only be directed to legitimate sites, and that all ads directed to them will originate from legal content providers such as Netflix and Amazon.

But there is only so much that Google can do to curb online piracy. Although it is the dominant search engine, it does not own the internet, nobody does. And pirates, unfortu- nately, know their way around the internet, even without the help of Google.

Google’s efforts to end online piracy have therefore largely been ineffective. But this is not surprising. Google’s efforts in this area have primarily been informed by a need to avoid bad press and possible litiga- tion. Ending online piracy has there- fore never been an end in itself for Google, as the company is a search engine and not the “internet police”. It doesn’t help Netflix, either, that there is no reliable legislation to arrest and persecute online pirates here in Kenya, as is the case in the

U.S. and Europe. On the contrary, the regulatory environment in Kenya may pose a threat to Netflix’s ambi- tions in the market.

The Kenya Filmand Classification Board (KFCB) has already has some reservations with regard to Netflix’s entry into the market. The CA, for its part, has given mixed signals. This ambiguity only serves to suggest that Netflix may have a very hard time adjusting to the Kenyan regulatory environment.

KFCB says that it has identified inappropriate programs hosted by the on-demand media provider that is wrongly rated for age 13 years. “Since it (Netflix) is in Kenya then it needs to be subjected to the Kenyan ratings for consumer protection,” said KFCB.

But CA believes   that   KFCB is overstepping since it does not observe the same scruples with YouTube, which operates using more or less the same model as Netflix. CA further observes that Netflix does not need a license, unless, of course, it partners with Pay TV operators. “Netflix is an over- the- top service provider where subscribers get the content through Internet Protocol, more or less like You Tube. As such we are not going to ask them to come for a license,” said CA Director- General Francis Wangusi.

YouTube, which is based on the same model as Netflix, has been available in Kenya without the reg- ulatory restrictions that KFCB want imposed on Netflix. This arbitrary application of the regulation points to more trouble for Netflix, and possibly for Google; assuming KFCB begins actively censoring content on YouTube.


Unique strategy

Despite the difficulties that beset Netflix, there is still an opening into the Kenyan market. The media provider will need to craft a unique marketing strategy, one that appreci- ates the finer nuances of the Kenyan market. It would be great in this instance to borrow a cue from some of the American brands that have successfully ventured into Kenya.

American brands that have suc- cessfully come into Kenya have not come offering a product per se, but a lifestyle. They have presented a chance for consumers to look and feel different. American fast food outlets such as KFC, for instance, have managed to create the image that they are an upmarket brand. For this reason, the brand acts as the litmus test who are truly in the mid- dle class or just pretending to be, at least according to younger Kenyans. This explains why a young Kenyan is willing to fork out around $12 for a bucket of chicken, some fries and coke at KFC while they can get the same offer for half the price at a local eatery.

More than anything, Western brands coming into the Kenyan mar- ket have realized that Kenyans don’t want the products themselves, but the western lifestyle. This lifestyle, at least according to the prevailing popular culture in Kenya, draws the boundary between the strugglers and the ones doing okay.

If Netflix can package itself as the ideal western product, then it will undoubtedly gain traction. This is because any product in Kenya that has a western image is currently popular not necessarily because of the core service or good, but because it appeals to the prevailing popular culture. This phenomenon is intri- cately captured in a PwC report, which categorically stresses that Nairobi’s entertainment and media sales will increase in the coming years because of a desire to “catch up” with the developed world.

“We project Nairobi’s 12.5% pace will be the fastest compound annual growth rate in E+M (enter- tainment and media) sales global- ly between 2013 and 2018 as a new Nairobian middle class seeks to catch up on many of the products and services that developed urban- ites take for granted,” says PwC.

Packaging itself as a lifestyle rather than a service is Netflix’s most sure entry point into the Kenyan market. This is the only way to cir- cumvent the key challenges such as restricted market size (due to lack of widespread high speed internet), competition from movie shops and regulatory uncertainty.

To, however, fully appreciate Netflix’s chances of success in the Kenyan market, it is also prudent to look at the global picture. It would suffice to point out that Kenya is not the only market where Netflix has ventured into this year.

Kenya is just one of the 130 countries that Netflix has decided to expand into this year. It has expand- ed into nearly every country, includ- ing Nigeria and South Africa. China is the only notable exception as the Chinese government maintains very tight control over the media.

Because of this global strategy, Netflix will need to work closely with local teams in each respective market as all these markets are unique and require a unique local strategy rather than a blanket strat- egy. If Netflix makes use of local teams here in Kenya, the probability for success will increase, as some of the critical points addressed in this analysis—such as western brands appealing to popular culture—are likely to be factored into its strategy. Moreover, it is important to note that all matters held constant, the only lasting challenge for Netflix in Kenya is affordable high speed internet. If that can change, then we are talking about a whole new set of possibilities not just for Netflix, but even for other internet streaming services such as Google’s YouTube.

“While traditional TV (linear TV) is program-based, the stream- ing technology turns that on its head and empowers consumers to watch news or any other content on demand,” said Joshua Chepkwony, Jamii Telecom chief executive. “Reliable and affordable broadband connectivity is the key driver of this shift,” he added, indicating just how big an impact affordable fast broad- band internet will have on the likes of Netflix.

The prospect of reliable and affordable broadband connectivity becoming a reality in Kenya, par- ticularly in the residential market, is huge. This is after considering how players such as Jamii Telecom’s Faiba have gained traction in such a short amount of time. Faiba started out as a product primarily tailored for huge corporates. It is, however, now available for SMEs and even residential clients.