The Netflix Plan to Conquer the World

Netflix - Sign - 2011
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The VOD giant was first to market in the U.S. but faces fierce homegrown rivals in its expansion abroad.

This story first appeared in the May 10 issue of The Hollywood Reporter magazine.

Netflix's recent quarterly figures have investors salivating: a $2.7 million profit compared with a $4.6 million loss a year ago, with revenue up more than $130 million year-over-year and a total of 29.2 million U.S. subscribers -- more than rival HBO.

Internationally, the outlook also is rosy: 14 percent of Netflix's revenue comes from foreign markets, and its international subscriptions were up 1 million last quarter for a total of 7.1 million. But the video-on-demand giant faces a host of challenges if it is to continue to grow abroad. While the company has profited in the U.S. from its first-mover advantage, the global VOD map is a crazy quilt of old and new competitors -- including such deep-pocketed giants as Amazon-backed and U.K.-based LoveFilm, News Corp.'s BSkyB and France's Vivendi. Compared with the relatively homogenous American market, the global audience is fractured with extremely local tastes (and often a penchant for online piracy) and highly specific technical and legal requirements.

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Sizing up Netflix's international potential, stock analysis service Trefis notes that "despite the potential hurdles, the recent success in international markets and the sheer potential that exists leads us to believe that Netflix can reach 30 million subscribers (outside of the U.S.) in the next six to seven years."


Netflix's Global Reach (and Local Competition)


Netflix Canada has more than 1 million subscribers, each paying $7.99 a month for access to 1,100 titles. if Netflix can supersize that offering, it will be a real threat to Canadian pay TV giants The Movie Network and Movie Central and potentially take 30 percent to 40 percent of the market, about 5 million subscribers.


Netflix users pay about $8.15 a month each for dubbed or subtitled content. its main competition comes from iTunes; the Televisa/TV Azteca service Total Play; Claro, a new service from telecom monopoly America Movil; and Mexico’s big black market: a pirated DVD goes for $1.50.


Netflix’s Brazil service charges about $7.50 a month and in 2012 announced that users consumed more than 1 million hours of content. But Brazil’s fast-growing economy is a VOD free-for-all, with local competitors such as NetMovies, the Hulu-like Terra and several pay TV services.


Netflix U.K. crossed the 1 million subscribers milestone less than a year after launch. costing $9.28 a month in the U.K. and $9.16 in Ireland, Netflix is up against LoveFilm, BSkyB-controlled Now TV and Blinkbox, a VOD rental and sell-through operator boasting about 2.8 million users a month.


Both Netflix and HBO went into the Nordic territories at the same time with competing services, both on par with LoveFilm's Scandi offerings. Rumors that Swedish-based music service Spotify could enter the VOD business mean an already tight market could get even tighter.


VOD still is tiny, comparatively, in continental Europe — representing only about 3 percent of the home entertainment business in France and about 5 percent in Germany. But it’s growing rapidly. Wherever Netflix goes, it will find competition: in Germany from LoveFilm, Maxdome and T-Online’s Videoload; in France from Canal Plus’ Canal Play Infinity and Dailymotion as well as the French YouTube; and in Spain from piracy -- 80 percent of all digital content consumed, about $7 billion annually, is done so illegally.


In 2012, Russia’s second-largest ad-sponsored provider, (23 percent market share behind Rutube’s 24 percent), signed the territory’s first subscription streaming content deals with the Hollywood majors. But piracy and spotty broadband coverage in rural areas are major hurdles.


The world’s most wired country has a VOD market that grew 26 percent in 2012 to $194 million, and nearly half its residents use a legal service. But homegrown telcos such as KT Media Hub, SK Broadband and lG U+ Medialog Dominate.


Netflix hasn’t landed yet, but Hulu has been here since 2011, offering an ad-free service for $10 a month alongside numerous local competitors, including motto TV and J:com. The VOD market is forecast to grow to $1.3 billion by 2016.


China’sVOD market is valued at $324.2 million, and while Netflix isn’t here yet, there’s Jiaflix, co-founded by Sid Ganis, and the state-owned m1905 movie portal. Youku Tudou is the leader of the VOD pack, but other competitors include you On Demand, Baidu’s iQiyi and le TV.


Netflix faces competition from MediaCorp’s new OTT service, Toggle, which offers much of MediaCorp’s programming via VOD as well as 12 streaming channels of live TV — all accessible by smartphone, tablet, computer or smart TV.


A handful of local players dominate the VOD market Down Under: QuickFlix, in which HBO has a 12 percent stake, has just 120,000 subscribers (of Australia’s 8 million TV homes) paying $15.41 a month for a selection of about 55,000 titles. most observers think the Aussie market won’t really take off until at least 2017, when half of the $42 billion high-speed national Broadband network is rolled out.


High bandwidth costs, cumbersome bureaucracy and cheap, plentiful content on existing cable and satellite services have held back india’s huge VOD potential, where internet-connected households are expected to top 380 million by 2017.


With a young and increasingly connected population, the middle east is primed for VOD growth — one recent study estimates that legal pay TV revenue from the region’s 16 countries will hit $3.7 billion in five years, with Turkey and Israel leading the way.


Even in Africa, with its poor internet infrastructure and troubled regional economies, there are options for VOD. in Nigeria, irOKOtv charges users $5 a month for the best in local features. most users are from the U.S. and U.K., but with African internet use growing, homegrown demand is rising.