With the impending arrival of Netflix, the battle for viewers will intensify among Australia’s internet protocol television, pay-TV and free-to-air TV providers, according to research company IBISWorld.

Internet protocol television (IPTV) is currently the big mover in Australia’s TV sector, with its revenue forecast to grow by a whopping 14.5% over the next five years. With well-established international IPTV providers seeking to enter the Australian market, competition among media platforms is increasing and existing players are looking for ways to boost their viewership and revenue.

Changing channels: Shifts in the media landscape

In Australia, free-to-air TV has long dominated the market. However, this is changing. Over the five years through 2014-15, free-to-air TV’s share of the viewing public is estimated to decline. Revenue for the free-to-air TV industry has also declined over the period due to growth in pay-TV density and the effects of digital piracy.

Over the past five years, pay-TV viewership is expected to have increased, with revenue for the pay-TV industry growing strongly. Outpacing them all, IPTV viewership is set to increase massively, destabilising the traditional viewing landscape.

“Technology changes have had a massive impact on how we watch TV,” said IBISWorld analyst Spencer Little. “On-demand content is now available not just via televisions but through laptops, smartphones and tablets, with demand for online TV content skyrocketing.”

Australians are spending less time watching TV, but more time using computers. Changes to viewing hardware and habits have led TV providers to adopt technological changes to keep pace with audience demand. Despite this, traditional TV networks and pay-TV providers have struggled to compete with the popularity of digital streaming services and illegal downloads.

While free-to-air TV continues to decline over the next five years, revenue growth for the pay-TV industry is expected to grind to a halt, growing by just 0.3% annualised over the period. By contrast, revenue for IPTV providers is expected to grow by a compound annual rate of 14.5% over the next five years, with viewership growing at a similar rate.

“Digital piracy has proved to be a significant problem for legitimate TV providers,” said Little. “Australia has one of the highest levels of per capita illegal downloads in the world, due in part to limited or delayed access to overseas content.” Furthermore, an estimated 340,000 Australians are currently circumventing geoblocking restrictions and using the US Netflix service access content on-demand, rather than waiting for content to be broadcast over free-to-air or pay-TV channels. Piracy is expected to remain a concern for TV providers due to the complexity of copyright law and lax enforcement of regulation.

Streaming through: The entry of Netflix

IPTV providers are the prime movers in the Australian TV sector. IPTV services are delivered over the internet rather than using traditional cables or satellites. IPTV offers similar services to pay-TV providers, but at lower prices and with a greater range of content and services.

US-based IPTV provider Netflix has announced that it will launch services in Australia in March 2015. Netflix has over 50 million subscribers worldwide and offers a massive range of on-demand TV shows and movies. A basic US Netflix subscription costs US$7.99 per month, significantly cheaper than most Australian pay-TV subscription costs.

“Australian pay-TV providers, such as Foxtel, have already had to slash subscription prices to compete with online providers and illegal downloads,” said Little. “The domestic launch of this global powerhouse will add a further burden to an industry already facing significant digital competition.”

Winners and losers

The ongoing growth of IPTV services and the entry of Netflix into the domestic market will have a range of effects on both viewers and incumbent TV providers.

The entry of Netflix means that viewers will have access to an even greater range of TV content and will likely face lower prices for individual products or packages. However, as the company’s initial domestic content will likely be less comprehensive than the available US packages, viewers are expected to take up subscriptions to multiple platforms or providers. Furthermore, IBISWorld expects that many Australian viewers will continue to illegally use the US Netflix service, due to the potentially limited content or delays compared with the US service.

“The entry of Netflix will do little to stem the tide of illegal downloads and streaming,” said Little. “Netflix is unlikely to be able to establish itself as a one-stop-shop in Australia, meaning viewers will continue to use a range of media in search of content.”

Beyond the effects on viewers, the entry of Netflix and the rise of other IPTV providers will significantly affect the already-struggling free-to-air TV industry, and begin to squeeze the pay-TV industry. The free-to-air TV industry’s revenue is expected to continue to decline over the next five years as competition from other media intensifies. This comes as no surprise for an industry in decline. However, revenue growth for the pay-TV industry is expected to grind to a halt over the next five years, while growth in viewership will also be limited.

In the face of these struggles, mergers and takeovers by domestic and foreign media companies are becoming increasingly likely. Channel Ten has been subject to a variety of acquisition rumours, with Foxtel (in a joint venture with Discovery) pursuing the network, and Time Warner and Viacom also looking at acquiring the ailing provider. Any foreign merger or takeover activity may help to provide the struggling domestic networks with the necessary scale to remain viable in a shifting media environment.