What's Next for Netflix
Now that Netflix has nearly the whole world in its hands, what will it do for its next act?
Well, how about launching streaming service in China, for one thing? And how about investing even more heavily in original programming and hammering out more global content rights deals, for another?
Speaking at multiple forums in Las Vegas last week, Netflix Inc. (Nasdaq: NFLX) executives laid out their vision for conquering the planet with their already nearly ubiquitous web video streaming service. "Today you are witnessing the birth of a new global Internet TV network," declared Netflix CEO Reed Hastings during his CES keynote address while announcing his company's simultaneous launch in 130 additional countries around the world. Hastings, Netflix Chief Content Officer Ted Sarandos and company CFO David Wells then proceeded to back up this assertion by spelling out their continuing global expansion plans over the next couple of years. (See Netflix: The Birth of a Global TV Network.)
With Netflix now operating in 190 nations, reaching at least half of the world's broadband households and boasting nearly 70 million paying subscribers, it completely swamps the pay-TV programmer competition. Home Box Office Inc. (HBO) , which bills itself as "the world’s most successful premium television company," is Netflix's closest rival, with some version of its pay-cable service now offered in more than 60 countries internationally.
But, while Netfflx doesn't have many more markets left to enter, it also doesn't have the world's biggest nation and second largest consumer market, China. So, first and foremost, company executives are trying to figure out how to approach that giant nation, which has been very tricky, if not impossible, for foreign media companies to crack because of tight government restrictions and the need for strong local partners, among other things.
Speaking at the Citi 2016 Global Internet, Media & Telecommunications Conference, which was held in conjunction with CES, Netflix CTO Wells said company executives hope to launch service in China by the end of this year. But, just like Hastings in his earlier CES keynote, he avoided committing to a firm timetable.
"It's a complicated regulatory model," Wells said. "We'll take our time and get there in the right way."
Besides hurdling over the Great Wall of China, Netflix aims to secure its global rule by following HBO's successful business model and spending more heavily than ever on original programming. At the Citi investment conference, Wells reiterated Sarandos's earlier pledge at CES to produce more than 600 hours of original programming this year, including 31 new and returning TV series, 24 new feature films and documentaries, 30 original kids' series and a fresh slate of standup comedy specials. "Our goal is to engage everyone [at least] once per week, if that makes sense," Wells said.
One key way that Netflix executives intend to keep the programming pipeline flowing is by securing the global rights to more and more of their universal content. Although most programming is still sold rights holders to distributors on a market-by-market basis, Netflix officials have been working to cobble together those deals into de facto global contracts or strike global deals from the get-go by offering generous sums for the worldwide rights.
"We need to pay a premium," Wells said. "We have to make them [content rights holders] comfortable that they're getting fair compensation for their content. So in some cases we're paying a pioneer tax on that."
While Netflix officials believe that they can achieve as much as 40% to 60% penetration in any market with their standard, universal fare, they also recognize that locally produced programming will be critical to their success as well, particularly in such large developing markets as China and India. So they are looking to build up their local programming portfolio in each market and show content in more languages. At the same time that they announced the expansion to 130 more countries last week, for instance, they also announced the addition of four languages -- Arabic, Korean, Simplified Chinese and Traditional Chinese -- to the 17 languages that the company already supported.
"Many of our shows today are produced for a global audience," Wells said. "But we need local content too."
In addition, Netflix officials realize that they need to adapt their pricing models and payment options to each market, particularly again in the developing parts of the world. Currently, the company is charging fees comparable to its basic $8 monthly fee in the US. But, echoing earlier remarks by Hastings at CES, Wells indicated that the fee could go lower in some markets over time. Netflix, which has relied heavily on credit card transactions in most of the western world, also plans to tweak its business model by teaming up with device maker LG Electronics Inc. (London: LGLD; Korea: 6657.KS) to offer prepaid access cards in developing markets, as it has already started to do in Latin America.
So global domination is not quite in hand just yet for Netflix. "It's the start of a long journey," said Wells, who warned investors that 2016 will be "an investment year" for the company, not a highly profitable one, "We know we have a long road ahead of us... We know we have lots of things to solve along the way."
— Alan Breznick, Cable/Video Practice Leader, Light Reading