As video services vie for a foothold in Europe’s fast-growing streaming market, global leader Netflix Inc.’s Hollywood movies and shows are facing stiff competition from a Swedish rival with an ace up its sleeve: live sports.
Modern Times Group AB’s Viaplay service streams European soccer with stars including Barcelona’s Lionel Messi as well as National Hockey League games in addition to movies and TV shows. That helped it amass a subscriber base in the Nordic region before its U.S. rival entered the market last year.
Viaplay is benefiting from the sports rights held by parent MTG, a TV broadcaster, helping it obtain expensive content that online-only providers such as Netflix typically choose not to splurge on. Besides defending its home market, Viaplay is also seeking to establish itself in more nascent streaming markets including Russia and Ukraine before bigger rivals.
“Having sports is a key differentiator,” Niclas Ekdahl, head of Viaplay, said in an interview from the company’s headquarters in Stockholm. “It’s a premium offer and utterly important in setting ourselves apart from competitors.”
Shares of MTG have gained 14 percent this year, giving it a market value of 17.6 billion kronor ($2.7 billion). While MTG doesn’t break out subscriber numbers or financials for Viaplay, the “aggressive rollout” of the online service will drive the company’s revenue growth, Rasmus Engberg, an analyst at Svenska Handelsbanken AB in Stockholm, said in a May 17 research note.
Sports, especially soccer, has traditionally driven demand for pay-TV in Europe, with service providers spending billions on the rights. Pay-TV companies are also expanding to online offerings, with Germany’s Sky Deutschland AG winning rights last year to offer Bundesliga soccer matches on TV, Internet and mobile devices in a deal bringing more than $800 million a year on average to the league through 2017.
Viaplay parent MTG has had TV customers in the Nordic regions for years and set up the streaming service to complement its older businesses, Ekdahl said. MTG helps Viaplay with its content purchases and expansion plans, he said.
“Having a million pay-TV subscribers at our base from the start made winning the rights to the Premier League and Champions League, the NHL and so on easier,” Ekdahl said. “We have a key ally in our corner backing us up and this is a key reason why it’s good for us to nurture the relationship between the old-pay versus the new-pay.”
Consumers are increasingly moving away from DVDs and traditional TV offerings, flocking to applications on their tablets and smartphones that allow them to sift through decades worth of shows and movies at home or on the go. In October, MTG forecast a decline for the Nordic pay-TV business and “fast” growth for Viaplay.
While Viaplay had a head start, Netflix’s debut last year helped energize the Nordic market and excite consumers by the possibility of using their Internet-connected TVs, tablets and smartphones to watch videos, Ekdahl said. The attention has also benefited Viaplay, he said.
“We wondered in early October, before Netflix came out, if the subscriber base would just erode, but the best thing, in hindsight, was that Netflix came in and helped educate the market,” Ekdahl said. “All of the sudden everybody is talking about online subscriptions.”
In the first full quarterly earnings report after Netflix’s launch, MTG said Viaplay “continued to report strong subscriber intake and achieved record daily viewing figures around a number of key sports events during the quarter.”
The sports content also enables Viaplay to charge a premium for its service, Ekdahl said. The Viaplay package that includes sports costs 249 kronor a month in Sweden. Netflix is 79 kronor.
To be sure, Viaplay’s success isn’t guaranteed. Netflix shares have more than doubled this year as the company added new shows and exclusive studio deals, making it almost five times more valuable than MTG. Netflix spends more than $2 billion on content annually, including its own productions such as the political thriller “House of Cards” starring Kevin Spacey. The Los Gatos, California-based company started its service for the Nordic region’s 25 million people in October.
Time Warner Inc.’s HBO started its online service in the region in late 2012, providing access to almost all its past and current content from “The Sopranos” to “Game of Thrones.” Amazon.com Inc.’s Lovefilm also provides a streaming service in Scandinavia.
MTG, controlled by Investment AB Kinnevik, the publicly traded investment vehicle of Sweden’s Stenbeck family, broadcasts more than 60 of its own branded channels in 36 countries, with a focus on Eastern Europe.
MTG started Viaplay in Russia in March 2012 and in Ukraine this April, beating Netflix to those markets with almost 200 million people combined.
“Limited success for Viaplay in Russia could be worth 60 kronor per MTG share in ten years’ time, while great success could mean 250 kronor a share,” Handeslbanken’s Engberg said. The stock closed yesterday in Stockholm at 259.10 kronor.
Piggybacking on MTG’s free and pay-TV channels in other Eastern European markets is Viaplay’s next step.
“Given where we’ve moved in the past, we have potential eyes on the Baltic region, Czech Republic, Bulgaria -- all big countries where we already have assets and there is a developed Internet penetration,” Ekdahl said.