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Summary

All over the world we are seeing more collaboration and alliances between traditional telecommunication players and OTT players. In Ovum's view, this is key to the success of the digital economy. The partnership between Millicom (Tigo) and Netflix in Latin America shows how the industry and the value chain are evolving, in both developed and developing markets.

Tigo-Netflix alliance in Latin America

Millicom announced a strategic partnership with Netflix in Latin America that leverages Tigo mobile (Tigo Smart) and Tigo pay-TV services (Tigo Star) in the seven markets where Tigo operates: Bolivia, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, and Paraguay. This alliance aligns well with Millicom's mission to strongly support customers' digital lifestyles, understanding that entertainment is one of the key elements of that approach and that the additional VOD offer with a key global player adds value to its core business.

Initially, Tigo will mainly target its promotions at high-end customers:

  • Selected residential Tigo Star plans will include free Netflix for three months.

  • Certain postpaid plans and Android smartphones will have the Netflix app pre-loaded, with free Netflix service and larger data caps. (Zero-rating plans for Netflix are not currently available.)

Tigo customers will also benefit from Netflix's caching servers, which provide better speeds, lower latency, and an improved customer experience.

Millicom is Netflix's exclusive promotional partner in the seven countries mentioned above and stands to benefit from potential revenue-sharing opportunities contingent upon customers signing up to the subscription VOD (SVOD) service beyond the free access period. Meanwhile, Netflix benefits from the marketing and exposure of its offering to Millicom's strong Latin American customer base (32 million mobile customers and 2.5 million homes).

One of the more interesting aspects of this alliance is the possibility of including payments in the agreement. In the near future, customers will be able to pay for Netflix either through their mobile phone account or Tigo Money, Millicom's successful mobile wallet initiative. Some technical and operational issues still need to be ironed out, but this is the logical evolution for this type of agreement, as it adds more value to both partners.

In the five years since launching in Latin America, Netflix has acquired a respectable number of subscribers – exceeding most analyst expectations – but growth is likely to slow. On the one hand, Netflix has grown in Latin America in the high-end segment, where subscribers often own international credit cards, and is developing a gift-card strategy for subscriptions in some markets, such as Mexico. Since Latin America is mainly prepaid, reaching this massive market and the unbanked through partner operators is, in Ovum's view, a positive move. Netflix has so far decided against flexible access to its standard monthly offerings – unlike some other SVOD rivals, Netflix does not offer per-day, per-week, or pay-per-view access – and this makes it difficult for the SVOD giant to penetrate the lower end of the market as a standalone offering.

This year, Netflix launched in some 130+ new and mostly developing markets; it will undoubtedly look to apply lessons learned in Latin America to many of these new markets. Initially, Netflix will be going after the high-end segment in its new markets – and we've already heard about some early successes in acquiring subscribers in "unlikely" Netflix markets such as Pakistan and Sri Lanka – but the real challenge will be how to make the service available to the lower end of the market. As it increases its investments in Latin America, Netflix will be closely analyzing new approaches to acquiring subscribers that it may use to develop its services elsewhere.

Netflix is already a ubiquitous feature on most Internet-enabled devices; the Tigo-Netflix alliance is not the first time Netflix's app comes pre-installed on a smartphone. But, as Ovum has argued for some time, consumption of digital media in developing markets is likely to leapfrog the stationary main-TV-screen stage that we saw first in mature markets: for many consumers in developing markets, the smartphone will be the primary screen for streaming media. Netflix has been pushing hard to cement its place in the early mobile-first VOD market. As such, the present partnership is a clear continuation of its long-term mobile VOD strategy and one that will be of huge importance in the developing world.

Appendix

Further reading

Digital operator profile: Millicom, TE0009-001296 (June 2014)

Millicom Group Update, December 2015, TE0015-000359 (February 2016)

Author

Sonia Agnese, Senior Analyst, Latin America

sonia.agnese@ovum.com

Jonathan Doran, Principal Analyst, Consumer Services

jonathan.doran@ovum.com

Tony Gunnarsson, Senior Analyst, TV

tony.gunnarsson@ovum.com

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