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Summary:

Having conquered America, movie streaming service Netflix has announced its plans to expand internationally over the coming year — but boss Reed Hastings is bound to find a few obstacles standing on his path to global domination.

Netflix boss Reed HastingsYou can’t fault Netflix boss Reed Hastings for his ambition. After all, the video company has had a great 2010: adding millions of new subscribers, topping customer satisfaction polls, adding an iPhone app and being rated the best-performing company in America. No wonder he’s casting around for more worlds to conquer.

The company’s global aspirations have been clear for a while — it launched in Canada in September — but its plans became a little clearer over Christmas, after it dropped some serious hints on its continued expansion.

“We’re now talking about other regions in the world,” a spokesman told the CBC. “Based on the early success of Netflix.ca, we’re going to continue our international expansion next year and we’re going to allocate significant dollar to it.”

But will it work? Netflix certainly has muscle, but there are plenty of reasons to suggest that taking over the world may not be easy.

First off, it’s going to face lots of local competition. This isn’t a land grab. Netflix will be up against entrenched competitors in most of the markets it would be interested in, and some of them are pretty successful in their own right. In Britain, for example, the incumbent is Lovefilm: an eight-year-old company that has become the top DVD rental outlet in the country with more than 1.4 million subscribers. It’s also challenged by popular public broadcasters (like the BBC and its hugely popular iPlayer) who comprise a category of competitor that is non-existent inside the US.

Rivals like these have been aware for some time that Netflix needs to keep growing, and have been preparing their defenses accordingly — Lovefilm alone has launched streaming services, forging deals with most of the major movie studios and built up links to retail giant Tesco. They won’t roll over easily, though they may become acquisition targets.

There will also be a lot of red tape to deal with. Going global for anyone is not easy from a legal standpoint, and for a company like Netflix it may be even more complex. It has worked hard to forge deals in the US, but in each new market it will start from close to zero. And although film studios are global entities, their national operations often work independently. Local decisions are often based on local conditions. Sony Pictures India, for example, has different objectives from its parent company.

Internet service providers, too, could throw up some resistance. Netflix is already under fire for using up around 20% of US bandwidth, and if suddenly faced with a new broadband-hogging service, they could offer resistance (even if they can’t actually throttle the traffic). Appealing to obstinate governments, who are already unsympathetic to American corporations, may slow Netflix’s progress.

But perhaps the biggest issue could simply be the cultural divide. Netflix needs to be incredibly careful in the assumptions it makes about foreign markets. It’s no secret that major US internet properties trying to enter foreign territories don’t always fare well. Craigslist, despite being ubiquitous across America’s major cities, has struggled to gain traction elsewhere. Yelp’s European adventures are taking some time to gather speed. And some successful exports (Yahoo! Japan, for example) are effectively just franchises owned by local investors.

None of this is to say that Netflix can’t succeed, just that it will certainly not be an easy ride. The company often makes brave moves — successfully cannibalizing the existing DVD rental business with streaming was a bold but necessary gamble — but global expansion requires a sales operation, a backbone and an infrastructure.

In the short term, acquisitions may be the easier option — but who’s prepared to bet against Hastings and his crew?

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  1. The biggest problem hasn’t even been noted – the digital divide.

    I live in England in an area where I’m even lucky to get 1/2mbps from my connection. I’m hardly living on a farm, but I’m not in a city either – I’m in limbo between the two as are many people in the UK.
    The telecommunications infrastructure in the UK isn’t suited for Netflix to be adopted by a lot of the population because the speeds aren’t there to enable it.

    I would LOVE to be able to use it – but the chances are I won’t be able to for quite some time.

  2. As much as I would love for this to happen there is one additional problem to overcome: Localization

    This includes problems in
    1. Release dates (release of US films in Israel can be same day or up to 3 months behind the US release) so you need to be careful not to cannibalize your existing market. I seem to recall Chocolate was still in the theaters here when the US DVDs hit the market.

    2. Local language. In some countries you need to either subtitle local language or voice over the dialog. And the rules are different for live action and animated films. In Israel all films get subtitles, while animated films also need a version with dubbed voice overs for small children that can not handle subtitles yet. Thus you have 2 releases of animated films (day time with dub and night with subtitles).
    3. Cultural changes. For example the film “Cloudy with a chance of meatballs” was released here as “Cloudy with a chance of falafel.” Occasionally phrases are changed in translation/ dubbed versions to support local cultural experiences too.

  3. Content is king. Netflix will need to carry local / relevant content to reach living rooms across the globe. From the European babel tower to Bollywood, greater China, Korea and Japan, Netflix needs to truly understand the pulse of the consumers. Of course they can start with Hollywood content only, but that carries the risk of marginalization. Or, Netflix will need international collaborators who can not only bring in local content, but also support local marketing.

    If Netflix is serious about multi-continent business, I doubt if they can pull it off without local collaborators.

  4. Bobbie Johnson Tuesday, January 4, 2011

    Jack: having just moved back to the UK from the US, I think the difference between the two countries that you hint at doesn’t exist. The network Netflix currently uses around America is not really any more advanced than Britain’s (in many cases, it’s much worse). That’s not to say you don’t have a point: I’m now living very centrally in a non-major city and I can only get a couple of megs. Rural users in most countries get dealt a terrible hand.

    Eric and FTM: both valid points. I don’t think there’s even a suggestion that Netflix would roll out the US service abroad. But I think it takes a lot of local talent and knowledge to forge the right deals, tick the right boxes and understand the differences between consumers in different countries.

    I’ll certainly be interested to see how they try to expand.

  5. After Missing Its Shot at Netflix, Amazon Buys Lovefilm: Online Video News « Thursday, January 20, 2011

    [...] And after what it sees as a successful rollout there, Netflix has been making noise lately about accelerating its international push and entering new markets this year. That could mean that Netflix might soon launch in the U.K., facing off against Lovefilm [...]

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