By Mary Ann Halford
Mary Ann is a Executive in Residence at Progress Partners with 20+ years of experience in building businesses in the media and entertainment industry in the US and internationally.
February 27, 2019 ? In the fourth quarter of 2018, Netflix beat subscriber estimates, adding a record 8.8 million subscribers, 7.3 million of them outside the United States. With more than 50 % of its subscriber base now being international, Netflix is becoming a global monolith.
Announcements made over the last few weeks seem to reflect Netflix?s unquenchable worldwide ambitions.
On February 12th, at a Netflix-hosted forum in Mexico City, the company announced that it is directly producing or co-producing 50 projects there, including both TV and film and will be opening an office in the Mexican capital this year.
On the following day at the Drama Days session at the Berlin Film Festival, senior international creative executives provided insights on Netflix?s commitment to investing in European content. Kelly Luegenbiehl, VP of International Originals in Europe, Turkey and Africa said, ?As you can see from our subscriber numbers, we?re continuing to grow internationally. We plan to scale our investment in global series to match that growth. It?s still early days but there is a lot of momentum internally for building out our international series.?
On February 19, Netflix announced it is establishing a dedicated production hub in Toronto, working with two studios, Cinespace Studios and Pinewood Toronto Studios. The space will be used to support the significant amount of ongoing production in Canada.
On February 20, Netflix announced that it had acquired the global streaming rights for The Wandering Earth, China?s first science fiction blockbuster, a film that has garnered over $600 million at the box office since its release during the recent Chinese New Year. While Netflix itself does not operate in China (too much government interference) it recognizes the global appeal of Chinese content.
Finally on February 24, Netflix?s Roma, directed by famed Mexican director Alfonso Cuar?n was awarded the Oscar for Best Foreign Film.
Why It Matters
One of the critical foundations of Netflix?s success has been its international growth strategy. Since launching in Canada in 2010, it has grown its global footprint to 190 countries, and has an estimated 80 million subscribers outside the U.S.
While the major U.S. entertainment companies have been operating globally for almost a century, Netflix accomplished unprecedented growth in just 9 years to become the world?s leading entertainment streaming service. In addition, unlike the major US entertainment companies who have been business to business, selling their content to local distributors, Netflix has built a direct-to-consumer powerhouse, fostering alliances with the dominant platforms in the countries in which it operates.
While the company used global content licensing deals to fuel its initial global growth, it has been able to leverage its direct to consumer relationships to garner deep insights on local preferences. That is why it is now producing local content in over 17 countries, with a focus on both serving both local and global audiences. The global success of the Oscar-nominated Roma and the Golden Globe-winning The Crown epitomize Netflix?s local-for-global strategy.
Netflix is also becoming a significant competitor to local incumbents. Earlier this month, Le Figaro, the leading newspaper in France, reported that Netflix has surpassed Canal+ in France?5 million to 4.76 million subscribers. While the Canal+ figure does not include subscribers through telco partnerships, Netflix has succeeded in France in a way that the major US international channel groups have never been able to.
What You Need to Focus On
Netflix?s resuscitated stock valuation in 2019 can largely be attributed to its international growth strategy. While the company has solid momentum, it will also need to manage challenges over the coming months and years to sustain its growth trajectory.
First off, the company is continuing to increase its content budgets domestically and internationally, requiring it to continue to borrow money to fuel production costs.
Second, its initial growth internationally was supported largely by access to content from the major US media and entertainment companies. With Disney, Warner, and NBCU all focused on launching their own direct-to-consumer services, initially in the US and ultimately globally, access to key US library titles will diminish and may impact Netflix?s appeal in different markets.
Third, there are significant income differences around the world, so while American subscribers readily absorbed Netflix?s recent price $1/month price increase, the company does not have the same flexibility in areas like Latin America, Africa and Asia.
Fourth, throughout Europe there are local initiatives to take on Netflix. For example, RTL Group?s German operation, Mediengruppe RTL Deutschland began revamping its OTT TV service TV Now with new and exclusive shows at the end of 2018. German competitor Pro-Sieben has linked up with Discovery to create a German TV streaming platform. The UK?s popular ITV service is planning on announcing its SVOD plans in the near future.
Lastly, there are challenges around broadband connectivity, particularly in developing countries, which will require significant infrastructure investment and change.
Netflix?s ability to manage these challenges and evolve its business model globally will be critical to its long-term success . . . but in the meantime, the company is the leading Global Monolith in the media and entertainment industry and will remain so for the near future.
This article was published by TV[R]EV: view the original article here.