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Telkom Indonesia’s Faisal Djoemadi and Joddy Hernady on blocking Netflix and monetization from video games

As new revenue sources emerge, so does Telkom’s business strategy.

(From left to right) Joddy Hernady, senior vice president of media and digital business at Telkom, and Faizal Djoemadi, digital business director at Telkom . Source : Telkom (From left to right) Joddy Hernady, senior vice president of media and digital business at Telkom, and Faizal Djoemadi, digital business director at Telkom . Source : Telkom

In recent years, video streaming platforms like YouTube, Netflix, and Iflix have driven revenue for Indonesia’s telco operator companies, including Telkom Indonesia. Since 2016, data, internet, and IT services have been key revenue sources for the company, while legacy components of its business have dipped in importance.

According to Telkom Indonesia’s financial report for the third quarter of 2019, it booked IDR 66.06 trillion (USD 4.4 billion) from data, internet, and IT services, accounting for nearly 65% of its total revenue for that period.

Revenue contribution at Telkom Indonesia from 2016 to 2018. Chart generated by Cindy Silviana for KrASIA. Source: Telkom Indonesia’s financial reports from 2016 to 2018.

 

Revenue contribution at Telkom Indonesia in Q3 2018 and Q3 2019. Chart generated by Cindy Silviana for KrASIA. Source: Telkom Indonesia’s financial report for Q3 2019.

 

Meanwhile, Telkom Indonesia has strict rules for over-the-top (OTT) services that are allowed on its network, which carries the most extensive coverage in the country. The majority state-owned company has blocked Netflix for four years—starting from when the streaming service landed in Indonesia in January 2016. Other telco operators in the country, however, have not instituted the same ban.

KrASIA recently interviewed Telkom Indonesia’s digital business director, Faizal Djoemadi, as well as the firm’s senior vice president of media and digital business, Joddy Hernady. They spoke about keeping Netflix off its network, the telco’s additional investment in LinkAja this year, and its moves in the video game sector.

KrASIA (Kr): Why does Telkom block Netflix? 

Faizal Djoemadi (FD): All OTT players should be treated equally, with no exception given to Netflix. In terms of a business scheme, we [Telkom and Netflix] have a deal to share revenue. We are neutral as long as our deal with Netflix is profitable and meets our terms and conditions. But there’s one requirement that Netflix doesn’t want to fulfill, which is to retract problematic content in 24 hours.

We implement the same rule for all OTT platforms. It is required by the Ministry of Communication and Information Technology and part of our guarantee to the Indonesian Consumers Foundation (YLKI). For instance, with HBO, if there is a public complaint about pornography, nudity, or violence, we ask HBO to take down the content. HBO has agreed to follow our requirements.

Kr: If the requirement to retract pornographic or violent content within 24 hours needs to be implemented, why do other telco operators give access to Netflix?

FD: Other telco operators have their own risk appetites and strategies. When they open access for Netflix or other OTT platforms, they only gain revenues from data usage.

We want to monetize more—we don’t want to just be a “toll road.” We feel our coverage is better than others.

Telkom has several digital service products, including Indihome, a communication and data service package for hone telephone, internet, and interactive television services. Indihome has reached 7 million customers, and is bigger than other players in the same field, like Biznet and Sinar Mas’ MyRepublic.

Meanwhile, our subsidiary Telkomsel had 170.9 million subscribers in the third quarter of 2019. Almost 65% of its subscribers are data users. To provide movie content for mobile phones, we bundle MAXstream into Telkomsel’s data packages. It has more than 3.5 million active users per month, and the subscribers can watch movies from our partners such as Iflix, Hooq, Catchplay, and Viu.

This is the difference between Telkom and other telco players. We bundle content with our digital services. Once we do that, it is Telkom’s responsibility to ensure no harmful content is in our products.

Graphic from Mobile Marketing Ecosystem of Indonesia 2019 report published by Mobile Marketing Association.

Kr: Last year, Telkomsel, state-owned lenders, and other state-owned enterprises launched the e-wallet LinkAja. What is its funding target for this year? 

FD: The initial target for LinkAja is to raise IDR 1 trillion (USD 73 million) this year. The existing shareholders such as Telkomsel, Bank Mandiri, Bank BRI, Bank BNI, and oil and gas company Pertamina will participate in the next round. However, state-owned insurer Jiwasraya, which owns a 1% stake, might not join the next round.

We are also open to other investors participating in LinkAja’s funding. The more investors, the better.

Kr: Digital wallets like GoPay and Ovo have become top players in Indonesia. How will LinkAja achieve the same status?

FD: LinkAja’s strategy is different from other digital wallets’. LinkAja is not targeting the lifestyle sector, but we want to enter essential services, such as gas stations, toll road payments, train tickets and public transportation, electricity bills.

Kr: In mid 2019, Telkom began to incubate game developers in Indigo, the company’s startup incubator. What was the reasoning behind Telkom’s cultivation of video game startups?

Joddy Hernady (JH): Currently, our capacity as a telco company is as an aggregator for OTT players and games. Meanwhile, the payment platform [LinkAja] continuously grows, but the margins are thin.

On the other hand, we see significant growth in games, especially in mobile games. Based on revenue, Indonesia is the 16th largest gaming market worldwide and the largest in Southeast Asia. 

Graphic from Mobile Marketing Ecosystem of Indonesia 2019 report published by Mobile Marketing Association.

However, less than 1% of the world’s game developers are from Indonesia. Therefore, we want to build up our own game developers in the incubator. Its first batch had 10 teams across Indonesia. At least seven mobile games and three PC games have been produced in the incubator.

Kr: How will Telkom generate revenue through video games?

JH: We have partnered with at least 60 game developers, including some from China and Korea. Currently, we are an aggregator, providing game partners with access or connectivity to Telkom’s network, so Telkom monetizes when customers make in-game purchases using phone credit.

We will co-publish a game called Arena Master 2 with Telkomsel next year. We bought the license, and will manage the promotions and sales. The margin is higher than just being an aggregator.

Then, we are going to enter the upstream and become a game developer, which is more profitable than being an aggregator or co-publisher for games.

We are making a game streaming service, Gameqoo, on the cloud. It will host games made by our 60 developer partners. The customers will be able to play games on their mobile phones and through Indihome.

Kr: How can games increase data revenue for Telkom? 

FD: Games are different from video streaming in that they do not require much data, which is good for Telkom.

However, games demand longer screen time, and there are many add-ons or in-game purchases, meaning customers need to purchase phone credit. The more gamers there are, the more revenue we will get from selling phone credit.

We believe games will be a major contributor to our digital business revenue in 2020, surpassing revenue from video content. More than 50% of mobile users play games every day, so we are heading upstream to become a game developer, and to encourage revenue growth from video games.

The interview has been edited for brevity and clarity.