Netflix CEO Reed Hastings said today that the streaming giant has launched in Saudi Arabia among 130 new territories. That news out of CES comes against the backdrop of a crisis between the conservative kingdom and its rival Iran that has many in the region increasingly concerned about the prospect of a major confrontation. Ironically, the crisis could end up being good news for Netflix as well as the host of big Western media companies including Lionsgate, Starz and Fox looking to tap into the potentially lucrative market of 370 million people.
Speaking at the Dubai Film Festival last month, Netflix content chief Ted Sarandos talked about the need for better on-screen representations of the Arab world in drama. “What’s missing on the global stage is a really great scripted series about contemporary life in the Middle East,” said Sarandos via Skype during the talk. “Most depictions outside of the Middle East are either historical or portray caricatures of what life in the Middle East would be.”
John Malone’s Starz is already in the Middle East, having launched Starz Play Arabia, its subscription online video service, across 17 countries in the region last April. Rupert Murdoch’s News Corp and 21st Century Fox own a minority stake in Saudi Prince Al-Waleed bin Talal’s media group Rotana. Fox is also launching its own Dubai-based theme park with attractions inspired by the likes of Aliens and Titanic, while Lionsgate is planning its a theme park in Dubai along with The Hunger Games-inspired attractions.
What’s more, the region has attracted a host of big-budget productions in recent months, from Ridley Scott’s The Martian in Jordan, to Star Wars: The Force Awakens in Abu Dhabi, and Star Trek Beyond in neighboring Dubai.
That hotbed of activity is in stark contrast to the worrying political and economic outlook. With oil at its lowest price in over a decade, the spending power of previously deep-pocketed media companies in the Gulf will be affected. In Dubai, for example, where a number of the region’s leading TV channels are based, budget cutbacks are taking place as ad spend in the region looks set to flatline in 2016.
Saudi Arabia, by some measure the region’s biggest ad market, announced a record annual deficit of nearly $100 billion at the end of 2015, an unheard-of situation in a country that had previously enjoyed decades of oil-boosted surpluses. In neighboring Qatar, spending has been slashed following the tiny peninsular state’s first shortfall since it first began exporting liquefied natural gas more than 15 years ago.
The escalating row between Saudi Arabia and Iran — sparked by the conservative Kingdom’s execution of prominent Shia cleric Sheikh Nimr Al-Nimr and subsequent Iranian storming of the Saudi Embassy in Tehran — has placed the region even further on a knife edge already suffering from conflicts in Syria, Iraq, Libya, Yemen, not to mention the on-going Palestinian-Israeli morass, as well as the battle against terrorist group ISIS.
“A lot of local media companies whose backing comes either from Arab states or corporations with close ties are really cutting back on spending,” said one Dubai-based senior media exec. “That gives the likes of Netflix, which is financially independent from instability in the region, a potential advantage if its competitors are slightly vulnerable right now to expanding.”
The race for SVOD domination is the next frontier in the fast-growing Arab media scene, partly because it could finally offer the holy grail of a sustainable pay platform. The Arab world is proliferated by free-to-air TV networks, with more than 500 channels vying for eyeballs and ad dollars across the region. Of those, the vast majority lose money but, given that many are owned by wealthy individuals or political/governmental entities, few, if any, shut down.
While free-to-air has traditionally been the name of the game, there are some who have tried, generally unsuccessfully, to create a viable pay TV model. One example is OSN, itself the result of the 2009 merger between Orbit and Showtime Arabia, which has tried to establish itself as the dominant pay TV player in the market with mixed results. OSN is now under existential threat from Qatar’s beIN Media, which is also in advanced discussions to acquire Colony Capital’s stake in Miramax, and is launching its own pay TV general entertainment platform this year. beIN Media recently inked multi-year output deals with leading distribs Italia Films and Front Row Entertainment and is aggressively expanding its content offering ahead of its hard launch.
The SVOD crown is still up for grabs, though. It is worth noting that two thirds of the Arab world’s population is under the age of 30. That youthful market is a hungry consumer of entertainment. While broadband penetration can be patchy across the region, mobile penetration is through the roof. In the UAE, for example, there are more mobile phones than there are people. That could be a gold mine for youngsters looking to Netflix and chill.
In Saudi Arabia, where Netflix has just launched, cinemas have been banned for more than three decades, making the appeal of the SVOD platform a natural for copious stay at home entertainment.
“The big players here were already nervous about Netflix,” says one film distributor. “We’ve seen it ourselves when TV companies, who were cutting down on acquisitions and looking to buy less films, were suddenly interested in acquiring SVOD rights. But we’re going to hold those rights back for Netflix when they come in.”
And, typically in a region so accustomed to volatility, some execs are just going with the flow given the forces at play being largely out of their control.
“Look, if there’s a war between Saudi Arabia and Iran, everything in the middle is getting blown away anyway so we’re just doing our thing,” said one media exec. “Don’t forget that during the 2009 financial crisis in Dubai, cinema attendance actually went up.”