Can Vodafone bring its Netflix partnership to the Netherlands?

Tuesday 22 September 2015 | 13:26 CET | Market Commentary

The telecom world earns its money from broadband, but differentiation these days is all about content, mainly video. Before it was known that Ziggo was working on a sports channel, KPN already expressed concern about the cable operator's concentration of sports rights. Ziggo's owner Liberty Global makes use of its economies of scale to build its content portfolio. Not only does this enhance its differentiation vis-a-vis KPN, the increased scale improves the cable operator's position in negotiations with content owners. 

Rising content costs are a major problem for many operators. They are turning to producing their own content and partnerships with OTT providers for the required differentiation and in order to reduce their dependence on traditional content producers. The benefits of partnerships between OTT providers and telecom operators are clear: the former gains a distribution channel, the latter can further differentiate its offering from the competition. 

Value chain

The video value chain that connects the producer to the consumer has numerous elements, but the three main categories are rights holders, distributors and aggregators. The latter come in various forms:

  • The broadcasters deliver primarily live TV and also offer on-demand services. They are dependent on operators for distribution, but are also developing their own OTT strategies. 
  • The operators provide the distribution and add their own on-demand services. They also provide the internet connection to carry OTT service. Whichever distribution platform prevails, the operators are always a 'winner', as they manage both platforms. At the same time, this creates a potential conflict of interest, as they may be tempted to promote their own content over the OTT content of others. To improve their position with rights holders, a global round of consolidation is underway.
  • Internet companies like Netflix also offer VoD. They rely on their brand recognition and market power in negotiations with rights holders. This is what's driving Netflix's expansion around the world. Aggregators are dependent on the negotiating power and hence vulnerable. That's why Netflix is also producing more and more of its own original content. For distribution, these players are dependent on broadband, and so they are also big supporters of net neutrality.
  • Manufacturers of devices including smartphones and smart TVs, such as Samsung, Sony and Apple, also act as distributors. They have control over which apps are pre-installed on their devices. Their distribution of OTT services is eliminating the role of the traditional TV providers; the hardware acts as a trojan horse. Video over a smart TV is not much different than on a smartphone; the business is about selling the hardware. This brings these manufacturers into competition with internet companies that also producing hardware, such as Amazon and Google.

Of course the roles are increasingly overlapping. The aggregators are commissioning their own content and becoming rights holders, while the rights holders are going directly to consumers for delivery. Apps make it possible for both the rights holders and the aggregators to offer their products over the top - once they have the rights. While some may claim apps are the future of TV, broadcasters such as SBS are taking a step further and launching an entire broadcast channel over the internet. Producers such as Endemol Shine are starting their own online channels to distribute their programmes, like the new site GetBeyond.us. KPN's upcoming service Play will make the company a pure aggregator, also offering live TV.

Rights holders going straight to the consumer via apps is a relatively new development. A good example is Viacom Play Plex, a suite of apps for its own channels (Nickelodeon, Comedy Central, MTV). This puts the company in direct competition with other OTT players such as Netflix.


Distributors are, on paper, the ideal partners for aggregators. Vodafone is a good example, with its distribution agreements in multiple countries for Netflix (Germany, New Zealand, Spain, Italy, UK, possibly Portugal). What's remarkable is Vodafone would be expected to favour its own content services over other providers like Netflix (see above). Nevertheless Vodafone appears to putting the customer first and letting them make the choice. Especially for challengers that need to build up market share, working with a player like Netflix can prove fruitful. In the Netherlands, we're still waiting to see if Vodafone can agree a deal with Netflix beyond past promotions to include set-top box integration.

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