by Cory Barker
The advertising campaign “Vive Netflix” retains the clever references to conventions of Hollywood genres (romance, thriller, and horror) that the brand applied to its Thanksgiving 2014 American ad (Airport), and on its Canadian campaign “You gotta get it, to get it” (with ads like The Proposal, Test Results). Yet, it also shows local faces in Mexican environments, introducing to the Mexican public the benefits of the system and highlighting key experiential attributes: instant access, ease of use, and affordability.
Netflix implemented another strategy to increase awareness in early 2015. Following the model of a previous contest run in 2014 in Brazil, the firm organized the Netflix Prize, which invited viewers to vote on social network sites for an independent Mexican film that would deserve to be part of its global catalog. The initiative drew the participation of 9,454 Twitter users and 21,431 Facebook users, who decided to award the 2013 film 12 Segundos. Through this process, Netflix promotes local talent while simultaneously obtains essential data that offers insight about the preferences of Mexican audiences.
Reaction of the Local Incumbents
This last area of analysis focuses on how the local companies have reacted to the entry of Netflix in Mexico. It takes into account both the illegal and the legal competition. Therefore, I start by exploring piracy, and conclude with an overview of the local companies that have decided to enter so far into the subscription video-on-demand (SVOD) market.
Piracy as Illegal Competition
In a November 2014 visit to Mexico, Hastings stated that piracy remains a key competitor for Netflix.45 This remains true for a variety of reasons. First, at the most basic level, piracy keeps users away from the service altogether. The pervasiveness of piracy has made Mexican people accustomed to obtaining easy access to new releases. Most films are available very cheaply on DVDs sold on the streets, and many Mexicans find it easy to watch content directly on illegal streaming sites like PelículasID and Cuevana2—where they can find recently released films as well as complete seasons of the most successful television series. In spite of the legal provisions against piracy, there is rarely any actual punishment or prosecution for individual consumers. Consequently, piracy is widespread and considered normal, even for members of middle and higher social classes. This attitude reflects widespread conceptions about file sharing at the international level identified by Mahalia Jackman and Troy Lorde in their article about the psychological, social, and economic factors influencing digital piracy. They explain that piracy is not considered a criminal act, but a victimless petty offense, in part because of the detachment that the Internet grants to the lawbreakers.46 The second reason that piracy remains a threat to Netflix is because it forces the company to include more recent—and thus more expensive—fare. In fact, one of the first objections against the service was “why pay for old movies when you can find new ones on the Internet for free?”47 As a result, Netflix has strived to keep its library updated, more localized, and more culturally relevant.
It seems that Netflix realized this issue early on because alongside the launch of local content, it started offering some new releases. Particularly salient was the advertising campaign for the launch of The Hunger Games: Catching Fire (2013) in Mexico, where it was available for streaming on the same day of the DVD launch, and five months earlier than it was available in the United States.48 Later, Netflix made the film The Butler (2013) available while it was still playing in movie theaters. With these kinds of moves, devised specifically to appease the impatient local viewers, the company worked to change the idea that it was only a place to watch old movies and television. In truth, Netflix just adhered to the same strategy of early premiere that Hollywood studios have long been applying in Mexico for highly anticipated films: it made them available earlier that in the United States in order to beat the pirates. These moves offer clear evidence that Netflix operates differently in different spaces; in this case, adjusting to a market where copyright is not strictly enforced and where people were already accustomed to having immediate access to the newest content.
Finally, piracy has directly victimized Netflix by spreading its original productions illegally. While Netflix original series House of Cards, Orange Is the New Black, and Marco Polo (2014–2016) cannot be accessed through the local competitors, they are accessible on a variety of the region’s most popular pirate streaming websites, such as cuevana2.tv, miratuserie.tv, seriales.us, and seriespepito.com. Sadly, piracy is an issue already very much a part of the Mexican viewing culture. Netflix has little ability to combat this cultural habit beyond promoting its brand and original series, and keeping its prices affordable.
Mexican Competitors for Subscription Video On-Demand
When Netflix arrived in Mexico, it was the first streaming service with a monthly fee, and it opened the market for that kind of service. According to press reports, in the months following Netflix’s entry, several similar services sprouted. Currently, the legal competition for Netflix in Mexico is growing quickly, and includes both local and global companies.49 A complete list of firms connected to digital delivery of television and film in Mexican territory should include providers of pay-per-view over the Internet (e.g., iTunes, PlayStation Video), TV Everywhere systems (e.g., Dish Móvil, Fox Play, HBO Go, Max Go, Blue to Go, Video Everywhere) and advertising-based systems like Crackle. However, for the purposes of this essay, I limited my analysis to Mexican companies that offer subscription plans—either as standalone services or mixed with another model such as PPV or TV Everywhere. This reduces the list to the six major competitors, compiled below in Table 1 and organized by their date of launch. I have included Netflix in the table as well, in order to ease comparison.
The local competitors vary greatly in size and reach. Early arriver Yuzu is a little known option, bundled with a pay television system (Maxcom Telecomunicaciones) that only covers the central region of the country. Grupo Salinas’s Total Movie was an early foray into the market that ended abruptly in less than three years. Cinépolis’s Klic stopped its subscription service in February 2015, when it became merely a site for online movie rentals (in collaboration with Wal-Mart’s Vudu). From the beginning, Klic presented itself as an aggregator of awarded films, more in the line of Mubi.com; hence, it was only a marginal competitor because it did not offer television series. Taking all of these circumstances into consideration, it seems clear that the three services that arrived last—Claro Video, Veo, and Blim—are most worthy of direct comparison. These services are also part of much larger media and telecommunication giants, those with enough power and competitive advantages to become real adversaries for Netflix in Mexico and Latin America.
Claro Video
América Móvil’s digital delivery service launched in Mexico on November 30, 2012.50 Claro Video is operated through DLA Inc., a company based in Miami specializing in digital content that América Móvil bought in late 2011 in order to take its telecommunication business into OTT services.51 Claro Video in Mexico costs 69 pesos a month, which can be paid by credit/debit card or directly bundled with the phone bill of its sister company Telmex. In fact, at the time of the launch, Telmex offered all of its broadband subscribers a one-year free trial of Claro Video, an offer that the company revisited in January 2015 with the implementation of the new telecommunications and broadcasting law that finally put América Móvil in direct competition with Televisa.
Besides the price, which is lower than what Netflix requires, one of the strengths of this competitor is the mail billing service. In the past, Telmex used this model to lure its clients to the pay television system Dish, which rapidly took a sizable portion of the market out of the hands of cable companies. Claro Video seems to be applying the same strategy now—very low prices, direct mail publicity through Telmex’s billing system, and the convenience of bundles featuring other services offered by the company.
América Móvil is already becoming a formidable competitor for Netflix in México because it is catering directly to the capti
ve audience of Telmex’s 9.2 million broadband subscribers.52 In fact, these subscribers were automatically added to the list of possible users of América Móvil, as they have been constantly reminded of the service in promotional materials attached their monthly bill. Considering Netflix’s concerns regarding payment methods, the pay-by-mail billing potion could prove to be a crucial advantage, which may foster rapid penetration for Claro Video in the Mexican market. In addition, the firm is offering one-month free to all of the 71.8 million customers of its cellular service Telcel.53
Furthermore, since América Móvil is “the largest mobile-phone company in the Americas,” this means it can grow to be a regional presence in the SVOD sector.54 At the time of Claro Video’s launch, Bloomberg reported that “The television industry in Latin America [had] voiced concerns about America Móvil’s push into the market, given the company’s dominance in phone and Internet service.”55 As of mid–2016, a report from the consulting firm Dataxis placed Claro Video as the second most popular SVOD provider in the region, with availability in Mexico, Colombia, Chile, Brazil, and many other countries.56
Until 2014, local content was the weakest point of Claro Video because it was mainly an aggregator of Hollywood and international fare, including some BBC productions, Spanish series, and Japanese anime. Its parent company is fundamentally a telecommunication firm that had no involvement in the production of serialized fiction and no known relation with any film or television studio in the country. However, in November 2015, Claro Video launched its first original production, the comedy series El Torito (2015–). It seems as though the Mexican telecom giant has decided to follow Netflix’s model no matter the cost.57
Veo and Blim
Televisa has launched two OTT brands in Mexico. The first one is Veo, which also worked as a TV Everywhere for the eight million members of the company’s pay TV services in the country (Cablevisión, Cablemás, Sky).58 In February 2016, Televisa announced its regional SVOD service Blim, which is available in the entire Latin America. In Mexico both services offered Hollywood and international film and television as well as a large percentage of local content, for they carry Televisa’s catalog titles and new releases. During the first trimester of 2016, Blim replaced Veo. It should also be noted that Veo and Blim’s parent company is the largest presence in broadcasting in Mexico, reaching a massive audience with its telenovelas, sports, reality shows, and newscasts. According to figures by Nielsen-IBOPE from June 2013, “Televisa’s channels had an audience share of 43.3 percent, followed by cable/satellite television with 27.4 percent, and by 19.5 percent from TV Azteca.”59 Accordingly, it is by far the most important local content producer of television in Mexico and one of the largest Spanish-language content creators in the world, with a strong foothold throughout the geolinguistic region, including the U.S. Hispanic market.60
Clearly, content might be Televisa’s strongest point as a competitor in the SVOD sector. In the press release issued at the time of its deal with Netflix, the Mexican company announced that it was “an important first step in Televisa’s plan to monetize its library of over 50 thousand hours of content via digital distribution.”61 Veo and Blim seem to have been the logical following steps. Already by mid 2016 Blim was offering exclusive content even before it is broadcasted in free-to-air television (i.e., the comedies Burócratas [2016–] and 40 y 20 [2016–] and the telenovela Yago [2016–]), a move that could change the viewing windows in the country at a significant level.
If I were to offer a comparison with the American media companies, Televisa would be Mexico’s equivalent of Comcast. Thanks to the recent changes in legislation, it has become vertically integrated; it retains its large interests in satellite and cable infrastructure, it owns the leading companies in media production in the country, and now it can also offer bundles of telephone, Internet, and digital content under the brand Izzi Telecom. In addition, Televisa owns a well-oiled machine of advertising through its broadcasting channels, editorial products, and cable outlets that could make the difference in brand awareness and lure new adopters to SVOD technology. Finally yet importantly, Televisa is notable because of its “congenial relations,” with the current federal government and it has been repeatedly accused of favoring the company as a repayment for helping promote Enrique Peña Nieto’s ascension to the Presidency.62 This last factor could indeed become significant in the case of any future regulation on the digital delivery business.
As long as it was not a direct threat to broadcasting, which is Televisa’s main business, Netflix could remain a collateral source of income for its catalog content and an “uneasy ally,” to borrow the term that Michael Curtin, Jennifer Holt, and Kevin Sanson use to characterize the relationship of the firm with American content providers.63 When conditions in the Mexican media environment began to change—open television has lost 15 percent of its audience since 2013—the local giant altered its position as well, announcing the end of the collaboration.64
Advantages of Netflix Against the Local Competition
After reviewing the competitive advantages of local incumbents, it is useful explore the advantages Netflix has in Mexico. On the technological side, the service is available in the widest range of platforms possible: video game consoles, smart television sets, tablets, computers, cell phones, Apple TV, and Roku. Therefore, it is very simple to find a dedicated application to access the service in most devices. This is not yet the case for local competitors, whose applications are still in earlier phases of development. Moreover, Netflix offers the most innovative user interface, to the point that it has become the default model for later emerging services. Features such as “Post-Play,” which makes easier to continue watching the following episode of a series, have been already mimicked by rival services.
Thorough knowledge of the audience is a major advantage for Netflix, since it provides content suggestions based on algorithms, which increase customer satisfaction and loyalty. With the Profiles feature, recommendations are likely becoming even more accurate for those viewers who share an account. Netflix’s sophisticated tracking tools allow the company to know exactly what people watches the most, a factor that is crucial in markets with distinct cultural traits, particularly because it provides vital information for buying rights and for producing original content.
Recently, Netflix has shown greater integration with social network platforms, allowing the user not only to share what he or she has recently watched, but also to recommend content to friends. In this way, Netflix is better positioned to gather even more data about its users and their social networks. Needless to say, the participatory activity of users constitutes a good publicity for the service itself. Lastly, Netflix’s original content and its connection to Hollywood have become a key advantage, since the firm carries the prestige of being an American media company with ties to the producers of mainstream film and television. This perception was confirmed during the entry of Blim, when the web was flooded by dozens of memes that mocked Televisa’s series and the new service.
The Current Position of Netflix
On November 2014, Netflix’s CEO Reed Hastings travelled to Mexico City, where he announced that the service had reached five million subscribers throughout Latin America. There, he made it clear that the region continues to be a strategic priority because it “is one of the fastest growth areas in the world in terms of broadband households and Internet connectivity.”65 Along with Brazil, Mexico is one of its largest markets, showing huge potential for development in OTT services in the following years. According to Dataxis, OTT subscriptions in Mexico grew 121 percent from 2013 to 2014, while Digital TV Research states that Netflix subscriptions in the territory grew 256 percent in 18 months since December 2012.66
Netflix’s current position in Mexico seems to be still very positive, although Claro Video is gaining ground quickly. In June 2014, Reforma reported that Netflix dominated the Mexican market of OTT with 68 percent, followed distantly by Claro Video with 10 percent (Apple iTu
nes and Veo were the next nearest competitors with 8 and 6 percent, respectively). By January 2015, Dataxis stated, “Netflix had a [64 percent] market share and [Claro Video had 32 percent].”67 Further, by “the end of June, [Claro Video] had reached a 39.7 percent market share while the American company fell to 55.7 percent.”68 However, these numbers should be considered with caution, at least through the end of the free year of service offered by Claro Video. The latter’s service is so affordable that many households could easily have both OTT services at the same time. In spite of its dominance, Netflix has not yet made clear that the country has reached sustainability in financial terms. In the letter to shareholders for the third quarter of 2014, the company stated, “[its] international markets launched prior to this year … are now collectively profitable on a contribution basis and will continue to help us fund new markets,” but there is not particular information referring to Mexico.69
Regarding competition, Netflix reached the Mexican media market at a good time and established itself firmly, but the real fight with the local companies has just begun. Local media and telecom giants Televisa and América Móvil waited to learn from the challenges Netflix had to face; they mimicked the model and then launched their own services using their local advantages in broadcasting outlets, cable/satellite subscriber base, advertising venues, and billing services. From all of the Mexican competitors, these two companies are in the position to grab a substantial percentage out from Netflix at the local or even the regional level. América Móvil is already a dominant presence in telecommunications, while Televisa has original content catered to local tastes and political power at its side. It can be expected that the real struggle for the new subscriptions in the growing Mexican OTT market will be held between Netflix, Claro Video, and Blim.
