Netflix’s Global Expansion Continues
New Internet-based delivery technologies are changing the movie industry. As with online music, the online movie industry is undergoing a shift from a transactional download model to a subscription-based approach. This is reflected in Netflix’s increasing market share, surpassing Apple’s share in 2011 to account for 44 percent of the online movie market by revenues.
In U.S., Netflix (NASDAQ:NFLX) was launched in the late 1990s in California and gained popularity by mailing its signature red-enveloped rental DVDs to customers. This underscored a shift towards at-home, commercial-free viewing of films, while undermining the business models of bricks-and-mortar home-rental giants such as Blockbuster. It transitioned to streaming TV shows and movies to televisions. It expanded to include computers and mobile devices. Since Netflix launched its streaming service in 2007, the service has expanded globally, first to Canada, then to Latin America, Europe, Australia, New Zealand and Japan to include 60 countries.
International expansion has been a big part of the Netflix growth story. Netflix had 65.5 million streaming customers worldwide at the end of June, 15.5 million more than it was entertaining a year earlier. The model works, and it has proven to be a popular export since 61% of its net additions over the past year were international viewers. Profits jumped to $266 million for the year on $5.5 billion in revenue.
Earlier this year, Netflix began offering its service to Cuban customers, the company becomes one of the first to take advantage of the White House’s recent relaxation of diplomatic relations between the U.S. and Cuba. The Netflix service is considered an export, and previously such exports to Cuban were not allowed by the U.S. government.
At his CES keynote on Jan 6, Reed Hastings announced that Netflix was going live in 130 new countries. The list includes massive new audiences like Russia, India, and South Korea. It’s a huge expansion of the company’s footprint, with China the notable exception to major markets where you can now stream its content.
Netflix says that its service “won’t be available in Crimea, North Korea, and Syria due to U.S. government restrictions on American companies.” And major series like House of Cards and Orange is The New Black may not be available in markets where Netflix doesn’t own the distribution rights. But the company is increasingly moving to own those rights for its original content, with an eye toward maximizing the return it can get on paying to produce new films and series.
With 69 million total customers, including 26 million outside the U.S., and a $5 billion content budget for this year, Netflix is willing to outbid most any local TV network or streaming service. The company is gradually shifting its portfolio towards more original content that grants it exclusivity and global rights in perpetuity and bolsters the case for window acceleration. Netflix is pouring resources into original productions. The company said it would release 320 hours of original programming this year, about three times its offerings in 2014. That includes about 65 new and returning series, movies and other content.
Netflix has benefitted immensely from the cord-cutting trend in the US. It had a considerable first mover advantage as it was one of the first online streaming platforms to pique the interest of the masses. However, the current online streaming landscape is becoming increasingly competitive. Many content providers such as Dish Network, Sony, Apple, HBO, CBS, Comcast etc., have thrown their hat into the streaming ring and well-funded streaming rivals such as Hulu and Amazon Prime are ramping up investment in order to improve the quality of their content. In light of the increased competition, Netflix will find it increasingly difficult to add new subscribers at a rapid pace.