Will Netflix Go Global in 2011? Maybe, but It Won’t Be Easy

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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