International expansion of Netflix

Availability of Netflix, as of Jan. 2016:

  Available

  Not available

2010: Canada

The company first began offering streaming service to the international market on September 22, 2010 to Canada. At the time, Canadians could subscribe to Netflix for $7.99 a month, a rate that CEO Hastings called, "the lowest, most aggressive price we've ever had anywhere in the world."^[1] However, despite the proclaimed low price, content selection in Canada was extremely limited. In 2012, data conducted by Josh Loewen for Canadian Business Online found that in the United States there were 10,625 unique titles in Netflix's library, whereas in Canada there were only 2,647.^[2] This could be blamed on differences in distribution deals in the United States and Canada. It is important to point out that from its beginning, Canadian Netflix has offered content not available in the United States. For example, a short-lived Fox sitcom, Running Wilde starring Keri Russell and Will Arnett, began streaming on Canadian Netflix the same day it began airing in the United States on network television. The show streamed on Canadian Netflix because there was no Canadian broadcast partner, but was not available on US Netflix – becoming deemed a "Canada-only exclusive".^[1] Still, regardless of a limited streaming selection, it took the company less than a year to reach one million subscribers,^[3] approximately three percent of Canada's population. Further, as of February 2014, there were approximately 5.8 million Canadians using Netflix, or 29% of Canada's English speaking population. This number represents an increase in Canadian users by approximately 40% since 2012.^[4]

2011: Latin America, Central America and Caribbean

On July 5, 2011, Netflix announced its plans to launch streaming service in Latin America,^[5] its largest expansion to date. At the time, Netflix had 23 million subscribers in the US and Canada.^[6] Entering the Latin American market meant Netflix had access to approximately 600 million people, or twice the number of people living in the United States.^[7] Although high speed internet in Latin America is not as accessible as it in the United States and Canada, upon the announcement of its expansion to Latin America, Netflix stock immediately surged 8%, bringing the company to a record share price of $291.^[6]

Beginning in September 2011, the company began its expansion to 43 countries and territories in Central and South America, as well as the Caribbean, offering content in English, Spanish, and Portuguese. Brazil became the first country in Latin America to launch the service on September 5. There the service was offered at $BR14.99 or approximately $9.10 per month, making it more expensive than in the United States and Canada.^[8] Rounding out the first five countries to launch streaming service in Latin America were Argentina, which followed on the 7th, Chile on the 8th, Colombia on the 9th, and Mexico on the 12th. Service spread to the other 38 countries in the following weeks. Among the content distributed to Latin America was programming from CBS, Miramax, and Showtime.

The launch in Latin America was not as successful as the company had hoped. While in Latin America, Netflix had no streaming competitors as it did in Canada, the digital divide (a lack of high broadband internet penetration) hindered rapid growth.^[9] In Brazil, for example, only 20% of the population had an internet speed greater than 500 kB/s a second; 800 kB/s a second are needed to stream Netflix's content.^[10] Furthermore, the lack of competitors in some ways slowed growth as well. Whereas in Canada new subscribers had been exposed to streaming content by other companies, the concept was newer to a wide Latin American audience, making some skeptical of the prospect.^[9] A banking system unused to recurrent monthly transactions exacerbated the problem. Still, while Latin American expansion happened more slowly than expected, Netflix was not out anything for the expansion and their Canadian expansion happened at a faster rate than expected, making their first two forays into the international market fairly successful. Additionally, despite the hindrances to growth in Latin America, Netflix continued in pursuit of content expansion, signing a deal with Fox in May 2012 (for a July 15 start) to make its popular content (e.g., How I Met Your Mother, Glee, Bones, The X-Files, Wall Street) available in the region.^[10]

The 2011 controversy

The initial launches in Canada and in Latin America happened (albeit barely) before Netflix's 2011 controversy in the United States. In September of that year, the company decided to switch to two separate plans (one for streaming and one for DVD), hiked its prices accordingly, and attempted a move to two websites (one for streaming and one for DVD rentals). The change to its business model was accompanied by a loss of approximately one million American users and a plunging stock price. Prior to announcing the change to service stock was valued at just around $300, after the price it plunged to less than $53 a share.^[11] Prior to this debacle, Netflix had been having its most successful quarter, mainly due to the decision to expand to Latin America. The company quickly lost all the money it made in the quarter it announced growth to Latin America, was forced to apologize, and rethink its changing model.^[11]

Bringing people back to Netflix after the 2011 snafu came in two forms.^[11] First, it began work on producing its own original content – announcing its adaptation of House of Cards in 2011 for a 2013 air date and its revival of Arrested Development in 2012 for a 2013 air date. Second, it continued international expansion – the originals were able to travel alongside its international expansion since Netflix, for the most part, retained complete control of their shows' distribution rights.

2012: UK, Ireland and Scandinavia

Netflix started its expansion to Europe in 2012, launching in the United Kingdom and Ireland on January 4.^[12] By September 18 it had expanded to Denmark, Finland, Norway and Sweden.^[13]

According to Christof Baron, CEO of the international marketing group Mindshare, Netflix developed a strategy for its international expansion, "They start with a limited offer which doesn't cost them very much money and minimizes the risk. Then they collect very detailed data about what people like, and structure programming and investment around consumer behavior."^[14] This accounts for cultural taste differences and allows distribution deals to develop accordingly. By September 2013, Netflix had added content from Channel 4, ITV and the BBC.^[15]

Netflix UK and Ireland reached its millionth subscriber faster than Netflix Canada, nabbing its millionth member by July 2012.^[16] In the UK, BARB (Broadcasters Audience Research Board) reported Netflix as being extremely successful in the UK market. More than one in ten households in the country subscribed to the service by 2014.^[17] More than twice as many people subscribed to Netflix than to Amazon Prime. As of the fall of 2014, Netflix had three million UK subscribers which was more twice as many as it had in 2013.^[14] Netflix is estimated to have over 300,000 subscribers in Ireland as of 2016.^[18]

2013: Netherlands

Following the United Kingdom and Scandinavia, the next country in Europe to receive Netflix service was The Netherlands, on September 11, 2013. The Netherlands was the only country that Netflix expanded to in 2013, though, as the company decided to slow expansion in order to control subscription costs.^[19] The company spent $3 billion on subscription content that year.^[19] Kelly Merryman, the company's Vice President of Content Acquisition, revealed that shows that performed well on BitTorrent networks and other pirate sites were more likely to be offered as part of the expansion. Netflix's CEO further explained that illegal downloading helps to create demand, as users may switch to legal services for an improved user experience.^[20][21]

In the final quarter of 2013, Netflix gained more new subscribers from its pool of countries than it did from the United States for the first time since it began its European expansion, making international expansion increasingly important. As media analyst Anthony Wible has been quoted as saying, "There are only so many people in the United States. The rest of the world is far bigger and the addition of domestic subscribers will start to slow down at some point."^[22] At the end of 2013, the company had reached approximately 32 million users in the United States and had additionally had approximately 10 million users internationally.^[14]

2014: Further European expansion

By September 19, 2014, the service was also available in Austria, Belgium, France, Germany, Luxembourg, and Switzerland.^[23] While reception throughout the rest of Europe was relatively warm, it was fairly hostile in France because of fears that the launch of Netflix would begin to ruin the country's "cultural exception" – its focus on culturally specific media. This led to Netflix's decision to create a series called Marseille, essentially a remake of its hit series House of Cards within a French context and one of the company's first non-English language shows.^[14]

Prior to its international expansion in 2010, Netflix's subscriber base grew on average by 2.4 million people a year. Following its arrival in Canada, Latin America, and eventually Europe, its subscriber base has grown on average by 7 million people a year,^[24] making international expansion key to Netflix's continued growth in the global marketplace. Notably, the company has over 20 original shows planned for release in 2015 and 2016. In that bunch are Netflix's first non-English language series.

In 2013, Forbes magazine estimated that international streaming accounted for 15% of the company's value. Netflix has subscribed approximately 30% of households in the United States.^[25] If able to replicate that in the United Kingdom and Scandinavia alone the company would add 12 million users.^[25]

2015: Australia, New Zealand, Japan and China

Expansion to Australia and New Zealand occurred on 24 March 2015.^[26][27] On February 4, 2015, expansion to Japan was announced to begin during the fall of 2015.^[28]

In May 2015, Netflix revealed it was in talks with Jack Ma's Wasu Media Holding and other partners to enter China's online video market.^[29]

Third European expansion: Italy, Portugal and Spain

On June 6, 2015, Reed Hastings announced, in an interview with the Portuguese newspaper Expresso, that Netflix would enter the Italian, Portuguese, and Spanish markets in October, and that it would install its Southern Europe support center (which will cover the previous three markets plus France) in Lisbon, Portugal.^[30]

2015–16: Further expansion into Asia and the Consumer Electronics Show announcement

On September 9, 2015, Netflix announced that it would be continuing its expansion into Asia by launching in Pakistan, Hong Kong, Singapore, South Korea, and Taiwan in early 2016, and the Philippines and Southeast Asia in the near future.^[31]

On January 6, 2016 at Consumer Electronics Show, Netflix announced a major international expansion into 130 new territories; with this expansion, the company promoted that its service would now be available nearly "worldwide", with the only notable exclusions including Mainland China, and regions subject to U.S. sanctions, such as Crimea, Syria, and North Korea. The company also announced a partnership with LG to market pre-paid services in Asia, Europe, and the Middle East.^{[32][33][34][35][36]}

Hastings stated that any potential expansion into China could take "many years", owing to the tightly regulated state of the internet and media industries in the country. While the company admitted that some of its original productions (such as Crouching Tiger, Hidden Dragon: Sword of Destiny) were meant to appeal to a potential Chinese audience, Hastings stated that the company was in the process of building relationships with local partners that it could possibly form a joint venture with.^[37]

References