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Netflix’s big reveal: The birth of a global internet TV network

Success of the SVOD's bullish move hinges on internet access, pricing and original programming that satisfies a diverse worldwide audience.
January 8, 2016

Sure, there are driverless cars, bendable TV screens and thousands of the coolest gadgets and tech innovations to catch everyone’s eyes at the Consumer Electronics Show in Las Vegas this week. Yet Netflix had no trouble standing out from the crowd with CEO Reed Hastings’ big reveal in the closing minutes of his keynote speech January 6 that the SVOD has added another 130 countries to its global streaming empire.

From Azerbaijan to Saudi Arabia (with some critical markets in between, including India, South Korea and Russia), Netflix is now live, with subscribers able to tap into a growing catalog of television series and feature films, including a slew of kid-centric originals and new hits like Marvel’s Jessica Jones.

While not entirely unexpected (Netflix had been rumored these past few weeks to announce a pending expansion into India and Russia), few had anticipated the global scope of the company’s expansion just six days into a new year.

The news was so big, in fact, Hastings didn’t even try to play down its magnitude and what it means to the Netflix brand.

“Right now you are witnessing the birth of a global internet TV network,” he told a packed house of gathered CES delegates and media at The Venetian resort.

Notably Hastings, along with Netflix chief content officer Ted Sarandos, spent much of the one-hour keynote reminding people of just how far and how fast the company has grown since first launched its streaming service in 2007.

It was only eight years ago, Hastings reflected, that Netflix announced at CES its very first integration into the LG Blu-ray player.

Netflix is now available on virtually any device that has an internet connection and more than a thousand connected TV models, according to Hastings, who added that the company leads other platforms in 4K content creation and HD titles.

In Q4 2015, 12 billion hours of Netflix content was streamed across its existing 60 global territories, compared to 8.25 billion a year earlier.

Netflix’s expansion strategy has largely been driven by a goal of reaching 200 countries by the year’s end, despite slower-than-expected subscriber growth at home.

In all, Netflix expected to finish the year with roughly 44.83 million US subscribers, up only slightly from 39.11 million at the end of 2014. Outside the US, subscriber acquisitions totalled 2.74 million, compared to 2.04 million in the prior year, and well above the 2.40 million forecast in Q3.

On the heels of its latest launch in Japan, Netflix had nearly 26 million members internationally. The company expected to end 2015 at 29.5 million, following its roll out later this month in Spain, Italy and Portugal.

The growth of internet connectivity worldwide has made much of the expansion possible. Hastings noted that 3.2 billion people are now connected to the internet worldwide. More than half (two billion) of them live in developing countries.

But Netflix’s bank of much-touted original programming (which will increase to more than 600 hours in 2016), is equally important to the strategy.

In the Indian market, for instance, Roopak Saluja, CEO and founder of the 120 Media Collective believes that while many global markets are used to consuming American fare, the Indian market already has a high rate of domestic content consumption (Bollywood), and as such, will demand series with a local flavor – simply translating content into local languages won’t be enough. There’s a grace period for Netflix, as it won’t need to start out the gate with Indian shows and movies, but it will need to move quickly once it’s entered the market, he says.

Saluja also stresses that price will be a deciding factor in Netflix’s success in the country. The current price point of US$9.99 per month for new subscribers won’t fly in India (or indeed, many countries), especially since most competitors currently setting up shop in the market offer some form of freemium model. (In India, the basic Netflix plan runs for 500 Rupees, or roughly US$7.50).

China, a massive market of 1.3 billion people, was noticeably absent from the company’s immediate expansion plans.

Last spring, the SVOD had been expected to announce a partnership with Wasu Media Holdings Co., a Chinese cable TV and broadband provider backed by Alibaba founder Jack Ma. But those talks fell apart, with Alibaba instead launching its own streaming service, Tmall, in September. It’s now one of several competitors in a crowded steaming market which includes Tencent Video, YoukuTudou, Baofeng, Letv, IQIYI, Funshion and Sohu.

Greg Stoller, senior lecturer at the Questrom School of Business at Boston University, specializes in Asia Pacific markets, and says he understands the business case behind a Chinese expansion, but it would be an uphill battle – even for Netflix.

“For one thing, pricing is just lower. If you think about the comparative cost of living in a place like China versus the US, or even any other place where Netflix does business, the margins are going to potentially be lower. I call it the return on effort – is that going to be enough to justify Netflix’s expansion?” he asks.

Stoller says Netflix also faces a strong preference among Chinese streaming viewers for made-in-China products and services. “The Chinese are very patriotic. They always prefer to work with Chinese firms. And it’s not like IQIYI and Alibaba are small companies.”

In Asia, Japan is the largest SVOD market, with South Korea coming in second with access to broadband internet helping to speed up a demand for content.

Stoller says China is expected to outpace Korea and overtake the number-two spot, “and that’s why I think most people view China as the ultimate payoff. Not only do you have 1.3 billion people, but you see so much gentrification, so many people moving toward the upper middle class.”

Nevertheless, Hastings says the push into China remains important to the company.

Netflix is also not available in North Korea, Crimea nor Syria due to US government restrictions on American companies.

From Stream. With files from Bree Rody-Mantha and Megan Haynes

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