Post by The Big Daddy C-Master on Jul 28, 2016 13:06:11 GMT -5
www.investopedia.com/news/netflix-faces-international-growth-problems-nflx/?article=1
Even as it expanded to 130 countries rapidly by January this year, movie and show streaming service Netflix Inc. (NFLX) is encountering significant problems in its international expansion, according to a Bloomberg story. The Los Gatos-based company failed to beat analyst expectations for international subscriber growth this past quarter, when it reported 1.52 million new customers overseas. Analysts had expected it to add 2 million new international subscribers. This is important because Netflix’s subscription growth at home is plateauing and it is counting on international markets to pick up the slack in revenues.
The Bloomberg report cites three important factors that are hampering Netflix’s growth overseas.
First, the service’s subscription costs, which are relatively cheap in the domestic market, may be considered expensive in developing markets. For example, Netflix charges $8 per month as a subscription in Cambodia, a country where the annual average income is $1,000. In India, which is expected to become the world’s second largest digital market by 2020, Netflix subscriptions start at Rs. 500 (or $7.45). At $1,581, India’s per capita income was slightly higher than that of Cambodia. Even in China, expected to become the largest entertainment market by 2020, the service is expected to garner a market share of only 1% by 2020. (For more, see also: Four Reasons Why Netflix Is In For Slow Growth Ahead.)
Slow broadband speeds are also playing spoilsport with Netflix’s expansion abroad. The service was responsible for 37% of peak internet streaming traffic in North America in 2015. Alphabet Inc. company Google’s (GOOG) Youtube was a distant second with 18% of all traffic. But the threefold increase in average broadband speeds to 31 Mbps from 2011 levels facilitated Netflix’s growth. In comparison, India had average connection speeds of 2.8 Mbps, as of the fourth quarter last year.
Third, startups and local competition could further make it difficult to penetrate these markets. For example, the Bloomberg report mentions a competing Kuala Lampur-based service called iFlix, which has tied up with telecom companies to provide a customized service for the region. The telecom providers offer the service for free and charge viewers based on data rather than a monthly subscription service. Viewers are also allowed to download entire movies for offline viewing but there are limits to the number of downloads they can make. (For related reading, see: Netflix Releases List of Most Binge-Watched Shows.)
To be sure, this is not the first time that Netflix has encountered problems in its international expansion. The company faced similar problems when it entered the Latin American market. However, it changed programming and approach tactics, with the result that it is seeing increased subscription numbers in Brazil despite a slowing economy. Quite possibly, the company has adopted a similar tactic in its new markets. In an interview with an Indian business publication earlier this year, Jonathan Friedland, chief communication officer said the service was watching what people watch in India. “We’ll begin to shape a service that reflects what people are interested in rather than what we think they might be interested in,” he said.
Even as it expanded to 130 countries rapidly by January this year, movie and show streaming service Netflix Inc. (NFLX) is encountering significant problems in its international expansion, according to a Bloomberg story. The Los Gatos-based company failed to beat analyst expectations for international subscriber growth this past quarter, when it reported 1.52 million new customers overseas. Analysts had expected it to add 2 million new international subscribers. This is important because Netflix’s subscription growth at home is plateauing and it is counting on international markets to pick up the slack in revenues.
The Bloomberg report cites three important factors that are hampering Netflix’s growth overseas.
First, the service’s subscription costs, which are relatively cheap in the domestic market, may be considered expensive in developing markets. For example, Netflix charges $8 per month as a subscription in Cambodia, a country where the annual average income is $1,000. In India, which is expected to become the world’s second largest digital market by 2020, Netflix subscriptions start at Rs. 500 (or $7.45). At $1,581, India’s per capita income was slightly higher than that of Cambodia. Even in China, expected to become the largest entertainment market by 2020, the service is expected to garner a market share of only 1% by 2020. (For more, see also: Four Reasons Why Netflix Is In For Slow Growth Ahead.)
Slow broadband speeds are also playing spoilsport with Netflix’s expansion abroad. The service was responsible for 37% of peak internet streaming traffic in North America in 2015. Alphabet Inc. company Google’s (GOOG) Youtube was a distant second with 18% of all traffic. But the threefold increase in average broadband speeds to 31 Mbps from 2011 levels facilitated Netflix’s growth. In comparison, India had average connection speeds of 2.8 Mbps, as of the fourth quarter last year.
Third, startups and local competition could further make it difficult to penetrate these markets. For example, the Bloomberg report mentions a competing Kuala Lampur-based service called iFlix, which has tied up with telecom companies to provide a customized service for the region. The telecom providers offer the service for free and charge viewers based on data rather than a monthly subscription service. Viewers are also allowed to download entire movies for offline viewing but there are limits to the number of downloads they can make. (For related reading, see: Netflix Releases List of Most Binge-Watched Shows.)
To be sure, this is not the first time that Netflix has encountered problems in its international expansion. The company faced similar problems when it entered the Latin American market. However, it changed programming and approach tactics, with the result that it is seeing increased subscription numbers in Brazil despite a slowing economy. Quite possibly, the company has adopted a similar tactic in its new markets. In an interview with an Indian business publication earlier this year, Jonathan Friedland, chief communication officer said the service was watching what people watch in India. “We’ll begin to shape a service that reflects what people are interested in rather than what we think they might be interested in,” he said.
