Finance Consumer Nine’s Stan has its work cut out to keep pace with Netflix

Nine’s Stan has its work cut out to keep pace with Netflix

Despite tremendous growth, Stan is still running at a loss. Photo: Stan
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Homegrown Aussie streaming service Stan has had another stellar year, increasing its subscriptions by a massive 34 per cent in the past year, storming to more than a million subscribers.

That gives it 11 per cent of the streaming market in Australia, putting it in second place only to Netflix, which has 43 per cent, new figures from Telsyte reveal.

The stellar growth is good news for Nine, which last week revealed it would take over Fairfax in a $4.3 billion deal that will see its ownership of Stan go from 50 to 100 per cent.

However, there’s more to Stan’s apparent performance than meets the eye: Despite growing at a tremendous rate, the three-and-a-half-year-old venture is still running at a loss.

Nine Entertainment insists the streaming service is on the cusp of breaking even and will soon turn a profit. But others are less bullish, warning the future success of the site is no safe bet.

Stan v Netflix

This year Netflix said it planned to spend up to $8 billion on original content in 2018, but The Economist projected in June that it could spend as much as $13 billion by the end of the year.

As a result of this big spending, Netflix now has more than 600 original shows.

In contrast, Stan lists just 12 originals, including Romper Stomper and Wolf Creek. Half of the originals are stand-up comedy shows.

“Netflix is a global company. Stan is Australian and so it can’t compete at this level considering how small the Australia population is in comparison,” screen media expert Dr Marc C-Scott said.

“I think it will be a chess game. CBS, which now owns Ten, could bring in its own service. It will also be interesting to see what Seven does in this space.”

To differentiate itself, Dr C-Scott said the Nine takeover could allow it tap into its rights to broadcast the Australian Open tennis from 2020, incorporating premium viewing into Stan.

“Stan will need to have a point of difference from Netflix, otherwise it can’t compete in the long run,” he said.

“Its niche could be Australian sport content. Netflix isn’t going into that space – they’d be battling it out with Foxtel.”

Dr C-Scott said another option would be to explore the idea of making more original Australian content, competing with Netflix.

“Nine could utilise the journalists it now has access to as a result of the Fairfax merger and create investigative documentary content exclusive to Stan that could be later broadcast to Channel Nine,” he said.

“True crime has worked on Netflix – think Making a Murderer.

“They could broadcast on Nine and the viewers could catch up on Stan instead of their video-on-demand service 9Now. Or they could premiere some content on Stan and later broadcast on Nine.

“This is not a new model. It used to be the case that Australians couldn’t access premium content from the United States unless they had a Foxtel subscription.”

But this depends on how much funding Nine is willing to put into Stan as original content is expensive.

The Crown series alone cost Netflix $130 million.

Netflix: big profits, tiny margins

Netflix has more than 125 million subscriptions around the world, and a revenue last year of almost $US12 billion ($A16 billion).

Out of that, Netflix was only able to squeeze out $US559 million ($755 million) in after-tax profit – a margin of just 4.8 per cent.

Nine’s profit margin, by comparison, was almost four times that, at 17.4 per cent. The ailing Fairfax’s profit margin was also above Netflix’s, though still a low 5.6 per cent.

Netflix is so big that it can afford to have small profit margins. They still translate into sizeable profits. Its immense scale means it can plough billions of dollars into producing original content, buying the rights to unoriginal content, while still charging ultra-low subscription fees.

Stan’s audience, by contrast, is limited to Australia, with its 10 million or so households, meaning there is a limit on how much revenue it can bring in without either lifting the subscription fees or introducing ads – both of which moves would hammer its appeal.

Stan’s balance sheet is not made public in either Fairfax’s or Nine’s annual report. However, in a half-year update in February, Nine said Stan was “approaching break-even”.

Last year Fairfax poured $93 million into Stan in the form of a loan.

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