The Three C’s of Netflix Global Expansion Strategy

Global ambitions have taken the content streaming giant, Netflix far from its California roots into markets across Europe, Latin America and Asia. In early 2016, streaming giant Netflix, Inc. announced that it had rolled out its service to 190 countries around the world. In June, 2016 Netflix international subscriber growth wasn’t performing as forecasted. The company had faced major headwinds as it tried to conquer the world. However, Netflix blasted past its own forecasts — and most of Wall Street’s and now has 104 million subscribers worldwide.   According to a recent study provided by Leichtman Research Group, more people report subscribing to Netflix than owning DVRs.

The three C’s Netflix has tackled to improve its global expansion strategy:

• Content
• Cost
• Competition

CONTENT: 

Internationally, Netflix had far less content. The company had to bulk up on global licensing deals. There is a strong demand from foreign audiences for both more and different content. In 2016, Netflix had focused mainly on English-language films and series, with an 80/20 model of U.S. vs. local content in most territories. It had focused much of its local investment on marquee original productions — with foreign-language series such as Columbian crime drama Narcos, French political thriller Marseilles or Hibana (Spark), a series set in the world of Japanese stand-up. The bulk of its content, however, had been in English, something that, in many territories, limited Netflix’ audience appeal.

Netflix addressed this problem by introducing dubbing and subtitling in Poland and Turkey and is tilting more towards local content in countries like Japan. When Netflix began to work with international rights holders, it often got translated subtitles that weren’t exactly up to par. Now that the company is distributing its originals around the world, it is itself working with thousands of translators, said Chris Fetner, the company’s director of content partner operations. The international subtitling of Chelsea Handler’s talk show alone required 200 translators. Netflix has also improved its own internal translation tools. “Three years ago, we had a blanket style guide for all languages,” Fetner said. These days, Netflix is working on a constantly updated Wiki, often tapping into a pool of translators and academics to make sure that key terms and phrases don’t get lost as international audiences tune into Netflix’s shows. To further build a stable roster of global translators, Netflix even developed its own online test, dubbed Hermes, which the company launched to the translation community this Friday. Translators can use that online tool to get scored by the company as a way to get approved for future projects.

To date, Netflix has only translated its apps and catalog into 20 languages, and Netflix co-founder Reed Hastings acknowledged Thursday that it will take some time to localize for additional territories. “We will add 2-3 languages each year,” he said, pointing to Greek and Romanian as some of the languages that are next on the list.

COST:

In many parts of the world, Netflix is already, arguably, too expensive. In most Asian markets, notes Venugopal, Netflix is among the most expensive SVOD offerings and often more expensive than existing pay-TV services. 

The company has negotiations with cable and cell phone operators to give it almost instantaneous access to potential new users without having to spend a fortune on advertising and distribution deals in markets where its brand and content are often still relatively unknown. Though many of them initially resisted such deals with online content providers, gaining access to Netflix’s exclusive programming helps set them apart from local rivals, just as customers’ online habits have shifted toward video, particularly on their smartphones and other mobile devices.

Overall international contribution profit being at a loss in 2016 comes as no surprise, as profits in early markets were used to improve, localize and build other international regions.

COMPETITION: 

Netflix’s main challenge comes from local competition. In Europe, Sky is a major buyer, and producer, of the kind of binge-worthy TV that Netflix specializes in. Netflix said it expects to see strong growth ahead even as it faces more competitors such as Amazon, which is also expanding globally. Amazon Prime’s streaming service is a major Netflix competitor in select European markets. In Germany, Amazon is actually ahead of Netflix. 

In order to continue ingenuity in their business model, the company is tinkering with different formats for the way its 104 million subscribers in nearly 200 countries consume its content. Its newest innovation revolves around interactive technology and story branching options.

What if you could decide whether Frank Underwood from House of Cards should be locked in jail? Perhaps those adorable kids from Stranger Things should pursue another adventure? Netflix now has a handful of children’s shows with the ability for the subscriber to choose the way the story plays out. If this catches on, other adult-oriented shows will join in the experiment.

Netflix is growing rapidly, but the battle for video entertainment is now on a global scale. Can Netflix keep up? They’re on the right track with creating their own content, which certainly help prevent licensing conflicts. 

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