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Europe could overhaul U.S. as Netflix most significant region

Regional share of Netflix paid subscribers Q3 2019

Netflix has just released data exposing details of its business in its four main markets. It shows that while the U.S. remains its most significant market, EMEA is catching up fast.

UCAN largest market, EMEA catching up fast

Netflix’s business has undergone rapid evolution over the last three years. In Q1 2017, 57.8% of subscribers were in the U.S. and Canada (UCAN). Europe, Middle East, and Africa (EMEA) had 20.9% of subscribers, while Latin America (LATAM) and Asia-Pacific (APAC) had 16.3% and 4.9%, respectively.

In the quarter just ended, UCAN remains Netflix’s most important region, with 42.4% of paid subscribers. However, EMEA is catching up fast. It now contributes 29.9%, with LATAM delivering 18.6% and APAC 9.1%.

APAC, EMEA lead subscriber growth

The most significant subscriber growth is occurring in APAC. Paid subscribers increased 12% in the last quarter and have doubled since Q1 2017. However, despite being the most populous region of the world, it houses only 14.5 million Netflix subscribers.

Netflix is having far more success in EMEA. Quarterly growth was 7% in Q3, and subscribers have more than doubled since Q1 2017 to reach 47.4 million.

LATAM is the most disappointing region for Netflix. The company launched across Latin America over ten years ago. However, growth is slowing, and the area still represents just 18.6% of the paying subscribers.

Regional growth of Netflix paid subscribers 2017-2019

Growth is cyclical

The second quarter in 2019 was disappointing for Netflix in all four regions upon which it reports. For example, EMEA subscriber growth tumbled from 13% in Q1 2019 to 4% in Q2. Similarly, Q2 2018 saw significant declines in subscriber growth in EMEA and UCAN. Looking back over the years where Netflix has not broken out regional data, Q2 has traditionally been the company’s weakest quarter. The third quarter shows only marginal improvement.

Netflix typically sees the most robust paid subscriber gains in the first quarter. For example, in 2019, APAC paid subscribers increased by 14% while EMEA grew by 12%. Again, looking back over the last several years, Netflix has traditionally had its strongest subscriber gains in the first quarter. It’s interesting to note that LATAM was the exception, as it saw the strongest increase in the fourth quarter of 2018.

ARPU growth strongest in UCAN and EMEA

With penetration approaching 50% in the U.S., Netflix has entered a more mature phase of growth in that market. As the established leader, the company has been able to increase prices while maintaining modest growth of subscribers. Consequently, the average revenue per unit (ARPU) has increased by 32% since Q3 2017 to reach $13.08.

Netflix ARPU by region 2017-2019

In all other regions, the company is still in an earlier stage of growth. Keeping the price lower and constraining increases is the best strategy to maintain strong subscriber growth. That said, between Q1 2017 and Q3 2019, ARPU increased 21% in EMEA, 16% in LATAM, and 5% in APAC.

However, the ARPU data could indicate a problem in LATAM and APAC. Netflix has been in Latin America for over a decade. Along with slower subscriber growth, the company is only able to increase prices slowly. It could be that Netflix needs to revamp its strategy in Latin America.

The Asia-Pacific region is also problematic. The average ARPU received by the company is far higher than subscription fees for competitors like iflix in SE Asia and Hotstar in India. Simply put, Netflix is too expensive for most consumers in those markets. It introduced a low-price mobile plan to the India market in Q2 of this year. It will need to do the same in SE Asia if it is to see significant growth there.

Why it matters

Netflix has revealed more detail on its performance in international markets.

The U.S. plus Canada is the most significant market for the company though EMEA is catching up fast.

Latin America and Asia-Pacific are lagging and will require market adjustment if they are to become significant markets.

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