Weekend Argus (Saturday Edition)
Going global is being local
Netflix is learning the hard way that expansion is not synonymous with a single linguistic and content model, but is still pretty upbeat
GERMANS and Singaporeans can’t watch the latest season of House of Cards on Netflix. For subscribers in Japan, it’s hard to find programmes in their native tongue. Indians and Filipinos can’t find much of anything to watch.
As big as Netflix is, with 34.5 million subscribers outside the US, it’s still seeking a foothold in many markets. On Monday, the videostreaming company stunned investors by forecasting secondquarter international subscriber growth that was far below analysts’ estimates of 3.45 million. The company expects to add 2 million new accounts outside the US, the fewest since mid-2014, when it was available in less than half as many countries.
The disappointing outlook brought home to analysts and investors that Netflix won’t quickly replicate its US success on the world stage. In many newer markets, few people speak English and credit cards aren’t common. Netflix has reported bigger and bigger numbers outside the US by expanding geographically every few months. Now, after launching in 130 countries in January, it’s mostly run out of new places and must work to become more popular where it already operates.
“Netflix will now need to improve the product offering and perhaps localise in some areas to drive acceleration,” Benjamin Swinburne, a Morgan Stanley analyst, said in a note. He expects those improvements to begin in the second half of the year.
While original programmes including House of Cards and Daredevil have catalysed growth thus far, Netflix has begun producing shows in markets like Spain, Brazil, Japan and France to build its global audience. The slate of programmes in native tongues includes the French political drama Marseille, which debuts May 5, and the Japanese series Hibana, coming in June.
The company picks projects it thinks will succeed beyond a single market – Marseille is meant to appeal not just to people in France but to francophones around the world, Chief Financial Officer David Wells said on a conference call Monday. About two million peo- ple in the US watch French language programming, Chief Content Officer Ted Sarandos added.
Still, those local programming efforts and improvements in payment processing may take a couple years to show results, Chief Executive Officer Reed Hastings said on the same call.
Netflix strives to offer the same mix of licenced and original pro- grammes around the world, so viewers from Hong Kong to Bogota can access the same library. Currently, some original Netflix shows, like House of Cards and Orange Is the New Black, which have helped attract almost 47 million domestic customers, aren’t available to subscribers outside the US. The producers licenced those programmes to foreign TV networks before Net- flix got ambitious about expanding to more countries.
The company is making progress by renegotiating rights in some instances or obtaining global rights from the outset. In Singapore, Netflix couldn’t initially offer Breaking Bad or Sense8. Both series are now available in their entirety. And Netflix originals like Unbreakable Kimmy Schmidt, Love, Jessica Jones and Daredevil came out at the same time as in the US in their entirety.
One growing challenge for Netflix is competition. As the streaming-video market has matured, it’s gotten harder to catch incumbents by surprise. In Europe, for example, Sky Plc has been spending more on original programmes and has its own streaming service, Now TV. Vivendi formed an alliance with Silvio Berlusconi’s Mediaset to boost its presence in Italy and Spain.
“Netflix blindsided a lot of local companies and had a bit of a headstart in some of the newer territories, but in Europe we have seen pay- TV operators’ own services becoming increasingly strong and well-programmed,” said Richard Broughton, research director with Ampere Analysis, a London-based media and technology think tank.
Netflix, based in Los Gatos, California, sees itself as a peer of technology companies like Facebook, which have been able to draw users around the world with a single model. Latin America has served as a template for newer markets in Asia and the Middle East.
The company struggled there at first due to cultural challenges like different payment systems, yet Brazil and Mexico are now two of its six biggest markets, according to analysts.
“We have a big opportunity in front of us,” CFO Wells said. “Many of our Internet peers have a dramatically larger business outside the US versus inside the US. So we’re pretty excited about that opportunity.”
Acquiring or developing local content will play a big role in determining how well Netflix exploits that opportunity. The company is spending $5 billion on programming this year, for library content and originals, part of $12.3 billion earmarked for the next few years. More than 80 percent of its budget goes toward licenced content – films and TV shows that aired first somewhere else. – Washington Post