Netflix is vocal in its opposition to Global Mode, but is there bite behind the bark?

While the nation’s other SVOD players are taking legal steps in regard to Global Mode, market newcomer Netflix has thus far been quiet in terms of its position on the use of virtual private networks (VPNs) to access international content. The company has not joined MediaWorks, TVNZ, Sky and Spark in the case, which is set clarify the legality of Global Mode in the local market. And this could largely come down to the fact that the company has little incentive to support the action.   

Whether customers are connecting to the local version of Netflix or its US counterpart makes absolutely no difference, because the streaming company will still generate income through its subscriber model. If anything, the use of VPNs gives Netflix a tool in gauging the level of customer interest and could help to determine which markets it should be expanding into.

Asked what the its position on Global Mode was, the company’s director of communications Cliff Edwards said Netflix was opposed to the use of VPNs.

“The use of a VPN goes against the terms of use for Netflix,” Edwards says. “We believe broadcasters should be paid for the content they license. We can’t accurately track the volumes of this occurring, but what we can do is offer Netflix to New Zealand consumers to broaden the choice of what they watch and when, at an affordable price. As we continue licensing more and more content on a global basis, VPN use will fade.”

Earlier this year, research firm GlobalWebIndex did attempt to track the extent of VPN use among Netflix users and found that as many as 30 million of the service’s subscribers live in countries where the service has not yet launched.

Given that users pay around $15 per month to access the service, this international user base provides a significant revenue stream for the company over and above the licensing fees it charges international broadcasters to run its content in their respective countries.

Previously, MediaWorks ran Netflix original House of Cards, while TVNZ has also paid for the right to broadcast and stream Orange is the New Black. And while these deals gave the providers exclusive broadcast rights for a limited period, users with Global Mode could access the content via Netflix at the same time that it was screening on local channels.

Edwards offers the entrance of Netflix into the local market as a step in reducing the level of VPN use in New Zealand.    

“We anticipate that with our launch in [Australia and New Zealand] it will reduce attractiveness of the US version of Netflix, as consumers will gain access to much of the same content at the same time and as they explore the service tailored specifically toward a New Zealand audience.

While this might be true to some degree, the local iteration of Netflix only has a fraction of the titles available on the US version and it will be quite some time before the Kiwi version reaches the US level—meaning that local users will still have a strong incentive to sign into the international site.        

Asked what steps Netflix was taking to limit VPN usage, Edwards said: “The use of VPN to avoid geo-filtering violates our terms and conditions, and we employ industry standard methods to prevent cross-border use of Netflix.” 

As illustrated by the willingness of users to agree to just about any terms and conditions, the inclusion of a clause against geo-filtering in the Netflix agreement could hardly be considered as a step to reduce VPN usage. However, it does shift at least some of the culpability to users accessing content through Global Mode.        

Edwards was also asked to clarify what he meant by “industry standard methods”, but he declined to comment, saying this isn’t something Netflix comments on further than the information already provided in his previous statements.

As things stand in the local context, the industry standard is still unclear—which is part of the reason why Sky, MediaWorks, Spark and TVNZ have taken legal action in regard to Global Mode.

If the court finds that Global Mode is permissible, then this will enable the media players to renegotiate their licensing contracts with content providers on the grounds that content isn’t exclusive. Alternatively, if the court decides it is illegal, then the major media players will be better positioned to force internet service providers to discontinue their global mode services.

Blocking VPN users is possible. HBO, presumably to protect its licensing agreements with broadcasters, has been vigilant in stopping users from using VPNs in Australia and New Zealand since launching its HBO Now online streaming service. HBO Now verifies the location of users through their credit cards, and in doing so has successfully managed to reduce VPN use and protect its commercial partnerships.    

In April, Wikileaks published an email written by Sony’s president of international distribution Keith Le Goy in which he complained about the inaction on the part of Netflix in reducing VPN usage:   

“Netflix do not closely monitor where some of their subscribers are registering from and don’t take steps to counter circumvention websites that allow people in, for example, Australia, to sign up to the US or the UK Netflix service and subscribe illegally (Netflix don’t as of now have a service in Australia, nor do they have Australian rights for our content).

We have asked Netflix to take steps to more closely monitor circumvention websites, and to restrict methods of payment to more clearly weed out subscribers signing up for the service illegally. This is in effect another form of piracy – one semi-sanctioned by Netflix, since they are getting paid by subscribers in territories where Netflix does not have the rights to sell our content.

Netflix are heavily resistant to enforcing stricter financial geofiltering controls, as they claim this would present a too high bar to entry from legitimate subscribers. For example, they want people to be able to use various methods of payment (e.g. PayPal) where it is harder to determine where the subscriber is based. They recognize that this may cause illegal subscribers but they (of course) would rather err that way than create barriers to legitimate subscribers to sign up.

We have expressed our deep dissatisfaction with their approach and attitude. I’m sure other studios feel the same way, especially as we are now hearing from clients in Australia, South Africa and Iceland (to name a few) where significant numbers of people are able to subscribe to Netflix. Netflix of course get to collect sub revenues and inflate their sub count which in turn boosts their stock on Wall St., so they have every motivation to continue, even if it is illegal.

This issue is almost certainly going to get more heated, since our goal and Netflix’s are in direct opposition.”

In January this year, several international publications ran reports saying that Netflix was looking into steps to counter so-called “VPN pirates,” but it seems that these measures have not been employed in New Zealand.

Slingshot general manager Taryn Hamilton was asked whether any of his customers had lodged complaints on account of not being able to log into Netflix US via Global Mode, but he said there no complaints and that the service works. And Kiwis are taking advantage of it, with CallPlus chief technology officer Adrian Dick pointing out that Netflix streams already account for between 15 and 20 percent of all traffic on the CallPlus Network (this includes local and international Netflix users).     

In another email published on Wikileaks, Sony chief digital officer Mitch Singer said “Netflix could do a much better job geofiltering using readily available third party tools/services” and recommended that Sony “not license to Netflix until they [Netflix] implement ‘state-of-the-art’ geofiltering”.

That email was sent in late 2013.

And today, the fact that as many as 30 million international subscribers—among them Kiwis—are thought to be able to access the service through VPNs indicates that Netflix’s opposition to VPNs doesn’t seem to go much further than its terms and conditions and its PR.  

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