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Netflix already won the US; now it needs the world

Netflix’s big advantage is going to come from a few key countries

Image: Netflix

Netflix is kind of like your quiet friend who grew up to do way more than anyone thought they would.

Work with me on this metaphor. That same friend, who suddenly became the most popular person in school, is now taking a chance by moving abroad. It doesn’t matter that the group of friends Netflix has amassed over the years is suddenly vying for its spot as the cool kid; Netflix is only focused on the new friends it’s going to make. Without those new friends, Netflix can’t increase its popularity, and that’s all Netflix really wants.

That’s a long way of saying that Netflix likely isn’t going to get much more popular in the US over the coming years. But knowing that, it’s heading abroad with the hopes of beating out its biggest competitors — including Disney Plus — by rapidly gaining subscribers in large markets.

Top analysts expect Netflix to continue growing at a solid pace, thanks to this strategy, and they are raising their estimates as a result. Additional proof came in the form of Netflix’s stock surging to a 52-week high earlier this week. Analyst Michael Nathanson announced in a research note that his firm is raising Netflix’s total subscriber estimate by 10 percent for 2024, driven by “an increase in international subs.”

Nathanson adds that over the next five years, he expects Netflix to slow down to around 1 million US subscribers each year. It’s quite a departure from the 5 million average subscribers Netflix was adding in the US between 2012 and 2018, as seen in the chart below.

Netflix’s US growth has already started to drop precipitously. Between 2018 and 2019, Netflix saw a 55 percent decrease in net adds, only bringing in 2.6 million subscribers. Not to get it twisted: 2.6 million subscribers is still great. That’s more than 20 percent of HBO Now’s total US subscriber base and nearly 10 percent of Hulu’s entire customer base. It’s just not quite the numbers that Netflix is used to seeing.

A slowdown in the United States makes sense: people who want Netflix probably already have Netflix. Fewer people are discovering the service for the first time, and there’s now an abundance of alternatives to subscribe to.

While competition in the United States heats up and conglomerates fight for viewers’ attention, there are two big markets that Netflix is focused on: international non-English markets that have high broadband penetration and mobile-focused countries. Broadband adoption is growing, and Netflix is already invested in regions like Germany and Japan where the company sees potential for bigger subscriber additions.

Those different markets could give Netflix a massive advantage over competitors like Disney Plus — if Netflix can figure them out. That means experimenting with pricing options, increasing global licensing plays (like getting exclusive rights to Studio Ghibli films outside the US), and taking chances on original international series that might not otherwise have been picked up before.

You can already see this playing out. When Ultimate Beastmaster, one of Netflix’s earliest competitive reality shows, launched in 2017, Netflix released localized versions for six different countries it wanted to grow in: the US, Brazil, South Korea, Mexico, Germany, and Japan. Over the last few years, Netflix started opening offices in prime markets like Germany, Italy, Britain, and Brazil. International series like Dark (Germany) and Elite (Spain) became hits, according to Netflix, both domestically and abroad.

The goal, according to Erik Barmack, Netflix’s vice president for international originals, is to “tap into new international audiences while also appealing to American Netflix viewers,” according to a 2017 New York Times article. To go back to our earlier metaphor, it’s like Netflix is hanging out with its new pals abroad while FaceTiming its friends back home, introducing them to one another, and hoping they hit it off. It’s why you’re likely seeing way more international programming, both scripted and not, on your homepage.

Here’s where Netflix has another big advantage over Disney, which is easily its biggest domestic competitor in the streaming space: the European Parliament instituted a quota in 2018 for international streaming services (like Netflix) that required all streaming services operating in the EU to carry at least 30 percent of content from the region it’s in.

Disney, which just launched Disney Plus in November 2019, will have to spend time generating more series and films in specific regions to catch up and meet the quotas following its rollout in parts of Europe next month. The same goes for Hulu once it expands internationally in 2021.

Other major streamers, like NBCUniversal’s Comcast and WarnerMedia’s HBO Max, seem to have less ambitious international plans, according to Nathanson. ViacomCBS CEO Bob Bakish told investors on a call Thursday morning that the company is in the “very early stages” of international expansion. While Bakish said the company is committed to growing internationally, it’ll take time to figure it out while Netflix is already in the space.

“In most tier three markets, [India, Egypt, Vietnam are some examples] Netflix faces no real competition as a digital provider of a high volume of premium television and film,” analyst Matthew Ball wrote in a research note last October about Netflix’s next six quarters. “Not only does this mean subscriber adoption is easier and churn is lower, but the quality of the company’s offering is stronger as it collects most of the best licenses (it also means they don’t pay enormous sums for these licenses, either).”

There are some areas where Netflix is facing tough competition. Netflix’s biggest competitors in India are HotStar (the most popular streaming service across the country by a large margin, which Disney acquired as part of its global push), JioTV (a local streamer that offers live sports and channels), and Amazon Prime. A large portion of subscribers to JioTV and HotStar are mobile-focused, and that’s where Netflix is trying to make a mark. That helps explain why Netflix is investing $400 million in Indian originals between 2019 and 2020.

Let’s go back to the friend analogy one last time. There’s a group of people back home concerned that said friend has lost some of their flair. They’re worried the friend is going to be usurped by one of the new cool kids on the block. But that’s not happening; their friend is making way more friends around the world. Simply put, Netflix isn’t worried about its customers back home; they’re likely to hang around. Now, it’s focused on building those new friend groups.