Thursday, November 26, 2020

South Africa's government wants to force video streaming services like Netflix into a 30% local content quota: Here's why it's a bad plan and will end up hurting consumers.

by Thinus Ferreira

South Africa's government is floating a controversial new plan to force local and international video streaming services like Netflix, Showmax, Amazon Prime Video and others in future, to carry at least 30% local content in the country - although a big problem is that the plan isn't practically feasible.

Forcing streamers to have a third of their content be local South African series and films will likely end up hurting consumers by taking away choice if these streamers, in order to comply, instead decide to downsize instead of upsize their overall ringfenced offering for South Africa to comply as they chase a percentage.

South Africa's department of communications and digital technologies not only wants to impose content quotas on streaming services. 

As part of its plan, it now also wants to change the existing legislation to force MultiChoice (DStv), StarTimes (StarSat) as well as subscription video-on-demand (SVOD) services like Netflix SA, Showmax, Apple TV+, Amazon Prime Video and others to collect SABC TV Licence fees that will be added into consumers' the bills from these private companies because the SABC isn't able to do proper licence fee collection.

About the plan to force a 30% local content catalogue quota on streamers, Collin Mashile, chief director of broadcasting policy at the department of communications and digital technologies, said "These video-on-demand subscription services, when they come and operate in South Africa, everything that they show to South Africans in terms of their catalogue, 30% of that catalogue must include South African content".

The draft legislation also proposes the creation of a government "team" that would be able to blacklist and block subscribers' payments from South African banks to international streaming services like Netflix and Amazon Prime Video if streamers don't comply with regulations. 

Forcing video streaming services to make their offering 30% local will however have unintended consequences for the South African consumer that only becomes clear when you know how these streamers operate and how they make money.

The problems with local content quotas for video streaming services are threefold:

1. Catalogue downsizing instead of upsizing bad for consumers
Firstly, it's extremely likely that video streamers won't "upsize" their content catalogues to add local South African content to make a 30% local target - they will downsize to manage margins.

South Africa doesn't produce enough and doesn't have enough local content for a streaming service like Netflix to add even if it wanted to. For every two new shows Netflix adds, it will have to find one local series from South Africa to add. 

That is beside the large back-catalogue of local South African content that a streamer like Netflix would have to suddenly find and acquire even if this volume of content were to be available. 

A streamer like Netflix alone adds more new (international) content per month in terms of scripted series than what a local South African broadcaster like the SABC produces in the same time and often at a lower quality.

If Netflix, Showmax or Amazon Prime Video is forced to carry 30% local South African content, they will maybe add some more local content to a degree, but what they will definitely do to make the formula work is not add local content in as much as rather downsize the size of their overall content.

The overall Netflix South Africa content catalogue is already smaller than other countries, like the United States for instance, because of licensing rights and existing licensing restrictions for the territory. 

If Netflix SA for example had 1000 titles and must carry 30% local content, it's not going to switch out and add or make 333 titles be local. It will much more likely reduce the overall 1000 availability to 300 so that it now only needs 100 local shows to make the percentage. 

That means less choice for the consumer.

International streamers like Netflix don't buy or commission content for a specific territory but makes content in a specific country meant for its entire global service. It would be weird to force a Netflix to buy content just for South Africa - and the truth is that Netflix won't. It will just restrict what it offers in South Africa further and that is not good for consumers.

2. Paying to carry dead video content weight around
Secondly, private companies like Netflix, Showmax and Amazon Prime Video are in the video content business with the aim of being profitable and making money.

Commissioning expensive-to-produce local South African content costs money, as does acquiring the content licensing rights of local library content. 

Video streaming services all use consumer data and constantly analyse algorithm data to see what content resonates and what shows and films are being watched. Content that doesn't attract and keep viewers are culled and removed, or cancelled. 

Similar to how YouTube algorithms carefully watch you while you watch a video and promotes videos depending on how much of a video was watched, neither MultiChoice, Netflix nor Amazon are interested in, or would ever spend hundreds of millions of rand to just acquire hours of boring and unappealing local content that are not watched just because it's "local".

Private video companies that are not in the charity business want to gain, keep and make money from users through monetising their time and attention.  

In this entertainment monetisation, the consumer engagement experience is key.  

These companies are not going to dilute their catalogue or experience with local South African content that their users are not interested in, or that makes the content discovery process for the consumer more difficult as users are forced to wade through more local content that they don't want to see in the first place but that costs a lot of money to carry. 

3. Not enough local content to share
Thirdly, it isn't as simple as just adding local content. Library content actually has to be acquired, or more specifically the licensing rights to carry and show it for a period of time must be obtained.

This can be non-exclusive, or exclusive, and services usually pay a bit more for exclusivity. Why would you pay to offer Game of Thrones and take that hit of acquiring a title in your operating expenses budget if your potential customer could just as well decide to access your competitor because Game of Thrones is there as well?

Netflix SA just acquired and added the South African drama series Hard Copy from Quizzical Pictures. It makes no sense for Netflix to pay to get Hard Copy for a period of time only to have Hard Copy also available on Showmax at the same time. It's a waste of money.

Now imagine each of these streaming services, trying to find enough shows for each of them to get to a 30% quota. 

There are not enough available. And Showmax or Amazon Prime Video isn't going to add Hard Copy just after the licence expired on Netflix because the potential return on the expense is going to be even lower after that window's exposure for a specific title.