At least for the next half-decade, Netflix and Nigeria’s iROKOtv can co-exist…

… but we don’t know what will happen thereafter.

We were all expecting Netflix but not this early in the year. We thought Netflix, like several other global firms, would test the African waters with South Africa, the continent’s most advanced economy, before expanding to other parts. We were wrong. The international provider of on-demand Internet streaming media has covered the whole world, except China as it added 130 additional new countries, yesterday. While discussions that trailed Netflix’s arrival in Africa has mostly been about quality and cost of data, as well as cost of subscription to the service, others have predicted the demise of highly rated Subscription Video-on-Demand network iROKOTV, often called Nigeria’s Netflix. But founder of the Nigerian VOD service Jason Njoku is unperturbed.

“… Netflix being in Nigeria has zero impact on iROKO and our vision for the future,” Njoku wrote in a blog post on Thursday.

He’s right.

Though Nigerian, iROKOTV has never focused on the country alone. In fact, most of the subscribers to the service are in the West. The US and UK represent approximately 55 percent of the VOD service’s subscription base and has grown steadily over the last few years, according to Njoku, despite being in Netflix’s top two markets. Why do people in the West use iROKOTV? It is because it is the home of Nollywood. Netflix isn’t.

However, as Netflix grows its brand worldwide, increasing focus is going to be on countries with large populations where there is the possibility of increasing subscription revenues. Nigeria and India comes to mind. Both countries have very large populations and robust movie industries. It may not be surprising to see Netflix start offering its own original Bollywood and Nollywood content. If this happens, it may be a challenge for iROKOTV whose unique offering is Nollywood content. But Netflix will not offer Nollywood content, at least for the next half-decade.

In July 2011, as part of iROKOTV’s series A due diligence, Tiger Global had McKinsey & Co conducted a study of Nollywood. Their findings show why Netflix will not invest in original Nollywood content anytime soon.

The study which was conducted in Nigeria, South Africa, and Kenya, showed that preference for Nollywood films skews heavily to the lower income population. Although a significant portion of upper income consumers also enjoy Nollywood films, 35 percent of the top income decile of Nigerians prefer Nigerian films to Hollywood/Bollywood films vs. 70-75 percent of the rest of the Nigerian population. In south Africa, less than 5 percent of interviewees in the top two income deciles prefer Nollywood films. Albeit old, the study remains very correct today. Already, Nigerians have started complaining about the cost of subscription. While they love and appreciate the kind of content they could have access to, they think paying $7 – 12 for it is just ridiculous. Six out of 10 people say subscription cost could discourage them from using Netflix. But Nigerians who wouldn’t pay $7 a month are not the ones Netflix is targeting. The American company is targeting the top income decile who do not really watch Nollywood movies. Except Netflix drops the price of subscription, these top income decile remains its market and this means it will not encroach on iROKOtv’s space.

Jason Njoku acknowledges Netflix’s clout but he is not worried.

“Considering we are one of the biggest actual producers of Nollywood, I don’t see that changing anytime soon. In time, we will be able to produce 200 movies a year ourselves, no shaking. And with the evident collapse of the DVD market, this only makes us stronger,” he wrote.

Last April, Njoku announced a deal with the streaming service aimed at supporting the launch of a dedicated African section for Netflix. Apparently, the deal fell through as there is no such thing as an African section on Netflix yet. But with the service now available on the continent, we may see an African section soon. Sometimes in the future, there would be battles for exclusive streaming deals but we all know who has an advantage. The good news for iROKO is that Netflix is likely going to go after only the first-tier Nollywood movies.

Who doesn’t want to get their movies on a platform set to have more than 100 million subscribers? But only EbonyLife Film’s FIFTY got on the platform from Nigeria last year.

The coming months are going to be very interesting. Whether Netflix has an Africa strategy that may see it produce original African content, get licences to stream African movies and make prices friendlier to African pockets, remains to be seen.