Rakuten TV, the Japanese e-commerce giant’s effort to take on Netflix and Amazon in the world of video streaming, has been a minor player when it comes to market share for online entertainment, with a mere 7 million users of its service. But today, it’s unveiling two key pieces of news that it hopes will help reverse that. The company is adding 30 new countries in Europe where the service will operate, bringing the total across the region and Japan to 42. And it’s inked a deal with big names in connected TV entertainment systems — specifically Samsung, LG, Philips and Hisense — to embed a dedicated “Rakuten TV” button on their remotes.
The two moves together underscore how Rakuten may not have been among those riding the wave as video streaming has exploded in popularity — compare its 7 million users with the 139 million users Netflix reported in its most recent earnings — but it does not seem ready to throw in the towel on it, either.
“We are here to continue running the marathon,” Jacinto Roca, the CEO of Rakuten TV, said in an interview this week. “This is another step for us to become a global player in this industry.”
It’s about time that Netflix and Amazon had some competition in the over-the-top video market — that is, video entertainment delivered to consumers over their existing broadband connections to compete with costly cable or satellite packages — but if they are perhaps some of the most obvious competition, they’re not the only ones. Apple, Google, a number of content owners themselves, and device makers all believe they have a shot at muscling in and becoming the go-to destination for consumers’ video entertainment needs.
Rakuten TV in some ways looks directly like the Japanese e-commerce company’s answer to Amazon’s video service: both have moved into the area as a natural extension of their e-commerce businesses, which sell consumer electronics and already have extensive operations around content — namely books and e-books, and both would have already build a lot of the infrastructure needed to run these services as a by-product of those e-commerce operations. And, alongside other Rakuten-owned assets like Viber and Ebates, this is one more move by the company to diversify not just its revenues and services, but the ecosystem in which customers are interacting with its brand.
But Rakuten TV has taken a different approach in at least three important ways. The first of these is in how it prices the service. There are no monthly subscriptions, and people watch and pay for movies on an a la carte basis. Roca said that this is unlikely to change anytime in the future.
“We think that the simplicity of our offer is one of the key value propositions for us so we have no plans to introduce monthly bundles,” he said. He added that in the case of Rakuten TV the company has found that customers watch more than one movie per month, and when you look at the average prices of its films — promotions might come in (in the UK) at 99 pence for one film, but a top release like the Crimes of Grindlewald costs £13.99 to view — “that is definitely a healthy ARPU for us,” he said. “The focus today is making sure that we have people enjoying at least one movie per month on our platform.”
He notes that the economics are ironically trickier in bundles for popular providers where multiple views are happening under one price, which can impact the margins on the overall service. (Something that has been argued with music streaming, too.)
The second area where Rakuten TV is trying to stand apart from others in the streaming video space is its decision not to create original content, or at least not on any scale. The company last year put out a film that it produced, Hurricane, which Roca described to me as an “experiment.”
“We will do three or four more films this year, to start learning about production, but we have no big strategy behind this right now,” he said, noting that content providers have some regulatory requirements in Europe to also contribute investment to grow the content production industry locally in the face of over-domination from the US. “It’s more an experiment, with but no strategic initiative.”
Content efforts can run into the hundreds of millions or even billions in terms of investment, as they collectively had for Rakuten TV’s competitors, and while there is clearly some glory and cred that comes with that, for a smaller player it may not be a tenable option given the challenges of distribution. It also puts Rakuten into a better bargaining position with other content rightsholders, who will not eye it as a rival for eyeballs who might also use their own might as a bargaining chip when agreeing on licensing.
That brings us to the third area where Rakuten is trying to be a bit different, and one excuse of Roca’s for why the company has taken so long to expand to more countries: localization. He says that Rakuten TV will stand out from the field by offering a wider and better selection of content for each local market, using data to see not just what locals like to watch on TV, but what were popular cinematic releases that Rakuten should definitely try to get for those markets. This takes time, he said.
I have to admit there is something to this: if you have ever travelled to various far-flung places and attempted to watch Netflix or Amazon Prime Video, you might notice that not only do you get a much more limited choice of titles, but they are nearly the same from country to country and put a heavy emphasis on the services’ original content — likely one other reason why they have created it in the first place, to populate their services without having to do lots of tricky licensing deals.
In any case, Rakuten is putting investment in another, more basic area first before it can start to double down more on original content. The company is not disclosing how much it had to pay the smart TV makers to create a button on their remotes, but said that it made the investment based on strong results on existing handsets from Roku and Hisense.
“We’ve had buttons on those for a couple of years, and we can see that we are bringing in new users from those buttons,” Roca said. “So after two years with those, we decided it was the right moment to invest and go into brands that have big market shares in Europe.” He says this will give Rakuten TV potentially access to buttons on TVs from providers that collectively have a 35 percent market share in the region. Of course, getting people handsets with those Rakuten buttons is predicated on consumers actually buying new TVs, so this is a bet that very much has yet to pay off.
The investment in smart TV placement is notable also because at the same time, Rakuten is not expanding its presence in any notable way on mobile. That also is down to data, Roca said: today, some 60 percent of its content is consumed on smart TVs. The company also touts that it has the largest catalog of 4K HDR movies in Europe and is about to start trialling 8K.
Looking forward, Roca said that Rakuten TV’s plan is to enter completely different markets now that it has largely covered Europe. That will include, most likely, Latin America, which has a cultural and linguistic synergy with Spain, the home market of Rakuten TV (the Japanese giant spearheaded its TV strategy around its 2012 acquisition of Wuaki.tv, founded by Roca, which it eventually rebranded). And it is also looking at which markets it might target in Asia. Another Rakuten acquisition, of Viki, which provides crowdsourced subtitles for online videos, could play a key part of its strategy in Asia, where Viki has a large usage base.
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