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The company has retreated from being a global player to a regional one and is redirecting its advertising-based video on demand (AVOD) model to three largest Southeast Asian markets: Indonesia, Malaysia and the Philippines.

The AVOD is taken out of China’s streaming giant iQiyi’s playbook, and it is now the primary revenue source for iflix. With the model, consumers are able to watch selected shows on iflix without paying a subscription fee. Similar to music streaming app Spotify, such free content is supported by advertisements.

The Importance of Ground Disagreement

The Importance of Ground Disagreement

For iflix, this model will be able to help reduce its production costs, especially for local content. In his departure note to iflix employees, Frenehard wrote that every dollar that the company is able to free will need to go into licensing engagement for local content in order to increase iflix’s investment in local content and advertising sales.

Southeast Asian consumers—younger viewers in particular—are “remarkably tolerant” to advertising and are willing to watch ads in lieu of a paid subscription, notes Virat Patel, managing director of Singapore-based media, telcos and digital consulting firm Pioneer Consulting Asia Pacific.

“But the AVOD space is dominated by YouTube and Facebook, so new players need to find the right niche. We are also seeing the rise of hybrid models which we term, ad-funded SVOD—a sliding scale where subscribers can pay a lower subscription fee in exchange for watching some level of advertising. The level of ads is naturally inversely proportional to the price paid,” he told us.

But unlike iQiyi, who has a 98% conversion rate, the rate of consumers converted as paying subscribers, according to a forecast released by IT consultancy Ovum, hybrid services like iflix generally have a 5-10% conversion rate.

A senior industry executive—who requested anonymity as he was speaking about a rival firm—described the video streaming space as a “long, hard, and expensive warzone”, where it will be very difficult for any current player in the industry to succeed by itself, hinting that there might be consolidation in the space.

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“iflix has shrunk itself to a niche position where it can’t scale back up anymore. It’s a small AVOD player, quite irrelevant to the region unless it could pull off a dramatic deal,” says the executive.

Grove’s venture with iflix has proven to be nothing but extremely challenging, perhaps because the startup’s business is not something that he is familiar with. Catcha Group’s past businesses are largely in the classified space, such as property listing company iProperty (sold to Rupert Murdoch-owned REA Group), automotive listing site iCar Asia (listed on ASX with US$104 million market capitalisation), and general classified platform Frontier Digital Ventures (listed on ASX with US$174 million market cap).

“iflix is a different ball game altogether. The business model is much more challenging where content is expensive and harder to monetise. Securing licensing agreements with TV networks, filmmakers and other content owners is an enormous expense,” says a Singapore-based venture funding consultant, who requested anonymity because he didn’t want to be seen discussing a particular company in public.