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Netflix (NSDQ: NFLX) expects overseas losses to double in just three months, as it spends more and more on vital local video content and marketing.
In Q4, its overseas costs doubled to $89 million, while revenue rose by a third to $29 million. International loss came in better than expected at $60 million. But the company is committing to spend more for the movies and TV shows that might attract lucrative recurring subscribers…
Q1 international forecast:
- Loss: $108 million to $118 million
- Subscribers: 2.5 million to 3.1 million (1.9 million to 2.45 million paid)
- Revenue: $38 million to $44 million
The company expanded to Canada and 43 Latin American countries in 2011. Quarterly overeas subscriber additions declined by a quarter to 380,000 in Q4, from the 510,000 added during the big LatAm push three months earlier. Netflix now has 1.86 million overseas subscribers.
The marked up-tick in international spending since Q4 reflects just how much Netflix is investing in its UK and Ireland launch, which began in January, as well as in ongoing marketing and content in Canada and Latin America.
“In future quarters, we intend to continue to increase our investment in the content libraries in each market, just as we have done in Canada since launch,” according to the company’s Q4 disclosure.
“Doing so improves the consumer experience, builds strong word of mouth and positive brand awareness, and drives additional acquisition, all elements of a strong foundation for long- term success. As we improve the service, we grow membership and thus we expect the quarterly international losses to moderate slightly.”
Netflix expects the big international losses to give it a company-wide loss of $9 to $27 million in Q1, with company losses remaining “modest” throughout the year and no further globalisation until a return to profit.
Long-term, there is an opportunity to build one of the world’s strongest home entertainment brands, carved out by new home devices with internet connectivity. Netflix’s challenge is to manage its domestic conversion from DVD to streaming well enough that its core business remains in tact. If it can do so, international expenditure should remain acceptable in pursuit of the global goal.
Netfix Overseas Snapshot
Canada — “The market opportunity in Canada is exciting enough that we continue to invest in the content library, meaning that we’ll run at roughly break even for two quarters, and we expect to return to a positive contribution profit starting in Q3 of this year, two years after our initial launch.”
Latin America — “We are quickly learning what content works best in the region, and are adjusting our content library accordingly … we’ve found that processing ecommerce consumer payments is quite challenging as compared with North America and Europe. To overcome this challenge, we are working with our local payment partners to optimize our systems, exploring adding new payment methods and testing various trial campaigns to improve conversion.”
UK & Ireland — Unquantified “very successful” launch. No numbers. “Over the coming years, we hope to be able to grow large enough to outbid Sky for one or more major studio output deals, as we did this year for MGM.”