Netflix International expansion is in for a big acceleration over the next two years. Today the company is in about 50 countries. In the Q4 2014 letter to shareholders, it was revealed that the company plans to launch an additional 150 markets in the next two years.
The company enjoyed a very healthy 2014 overall. Streaming subscribers grew nearly 30% over the year to finish at 57.4M. Revenue grew 26% over the same period, to $5.5 billion. The U.S. continued solid growth, increasing just under 5M streaming subscribers to 39.1M. However, International markets turned in an impressive 67% growth to finish the year at 18.3M.
At the beginning of the earnings call discussion of the 2014 results the focus, appropriately, was on International growth. In the letter to shareholders the company stated it would expand from 50 countries today to 200 by 2017. That is a remarkable target as it calls for the company to launch in an average of 19 new countries per quarter for the next two years. So far, Netflix has only named two countries as targets for the first quarter, Australia and New Zealand.[Update: World Atlas says there are, at most, 196 countries in the world. I think Netflix means they are going to launch worldwide in 2 years.]
How is Netflix able to accelerate the launch schedule so much in the next two years? Reed Hastings pointed to two big changes in the last year that are acting as enablers. The first is the rapid path to profitability of its initial group of International launches. Canada, Latin America, the UK, Ireland, The Netherlands (launched less than a year ago) and the Nordics are now profitable.
The second big enabler for rapid International expansion is the company’s ability to sign global deals for content, rather than having to go country by country. Ted Sarandos, Netflix’ head of content, cited “Better Call Saul” as an example of a show that Netflix can take to any country it has launched in.
One country that was singled out in the discussion was China. While Mr. Hastings was bullish on the company’s ability to launch pretty much everywhere else, he sounded a note of caution with China. He said if the company was able to secure the necessary licenses, the initial foray into the market would be modest as the company learned more about how to be successful there.
Like the goal or reaching 60 million US subscribers, launching in 150 countries over the next 2 years is a bold target that the company will have to focus keenly on to achieve. Given Netflix’ track record to date, if anyone can achieve it, Mr. Hastings and company can.
Another striking comment from the company is how bullish executives are on original content. The company stated that, “Our originals cost us less money, relative to our viewing metrics, than most of our licensed content, much of which is well known and created by the top studios.” The recent release of Marco Polo received poor reviews here in the US, but Mr. Sarandos defended the show saying it had done very well with subscribers and that the company has already ordered a second season.
Netflix plans to launch 320 hours of original series in 2015, triple the amount launched in 2014.
For the rest of 2015, the company seems set on strategy that will continue to pay dividends in subscriber growth both here and abroad. One of the most important developments is the company’s ability to get the Netflix client on pay TV operator set-top boxes. Dish here in the US is putting the client on the Hopper DVR, and many other operators around the world have done the same. This strategy will be critical in countries like Germany and France where Netflix is not well known. Expect to see many more operators agree to put Netflix on their set-top boxes this year.
I remain bullish on Netflix’ prospects for growth this year. I expect the company to have 72 million worldwide subscribers by the end of 2015, with 44M in the US and 28M internationally.
Why it matters
Netflix continues to successfully ride, and help drive, the expansion of web video viewing around the world.
30% subscriber growth and 26% revenue growth in 2014 bode well for 2015.
However, targets of 60M US subscribers and 150 market launches over the next two years are incredibly bold goals which the company will have to work hard and execute well on to achieve.