Will cultural challenges thwart Netflix's global ambitions?

CEO Reed Hastings is on a mission to dominate the world's TV watching with his streaming service.

by Rebecca Smith
Last Updated: 26 Apr 2016

When Netflix announced its ambitious goal to go global in January – launching in 130 new countries – it marked a statement of intent. Chief exec Reed Hastings said, 'Today you are witnessing the birth of a new global internet TV network.' The reality is that it’s been a huge ask, reflected in Netflix's most recent results.

While the first three months of the year were strong, its outlook for the second quarter wasn’t particularly promising. It reported losses in its international streaming business and will likely remain in the red into the second quarter, with a subsequent loss of $80m (£55m). Netflix expects to add about two million international subscribers in the second quarter; below analysts’ expectations.

It won’t have helped that rival Amazon has just announced it will detach its own streaming service Prime Video from its online delivery subscription in the US – making it a more direct challenger for Netflix. As a result, investors were feeling antsy – Netflix’s share price fell more than 10% last week.

Netflix's aim to be a global TV network does have the potential to transform viewing habits - streaming has already become a favourite worldwide, and offering a less fragmented service internationally could hoover up even more mainstream punters who might have been reluctant to take the plunge. But while Netflix has rocketed in scale, reaching 34.5 million subscribers outside the US and 47 million domestically, it can be easy to forget the streaming giant is still at the beginning of the road in many markets.

Felim McGrath, senior trends analyst at market research firm GlobalWebIndex, points out that while engagement levels in the US are strong – ‘about half of internet users here are watching monthly’ – success elsewhere has been patchier. ‘Our European data shows that local services often trump Netflix and in Germany for example, it’s Amazon Prime Video that's the most popular SVOD service,’ he says.

Netflix is facing problems in several major Asian markets, trying to compete against tough local competition. In places like South Korea, the streaming service may well need to up its game. Local content is popular and consumers have a range of streaming options while Netflix currently offers fewer than 20 local TV shows or films. 

The streaming service is also battling regulatory hurdles elsewhere. It was held up by a censorship row in Indonesia. State telecoms company Telekoms Indonesia has said it will continue to block Netflix until it adheres to regulations. That isn’t the kind of problem you can solve overnight and provides some insight into the scale of the task it's facing. Eventually, Netflix will want to offer a global library that's the same everywhere – it’ll need to keep investor confidence to see out that vision.

A jewel in its crown has long been its original content such as House of Cards, Daredevil and Narcos. In November the company announced it was investing $5bn into producing more and has just said a further $6bn will go towards original content in 2017. It has begun producing shows across Brazil, France (including new drama Marseille) and Japan to build its global audience; choosing programmes it hopes will gain traction beyond one market.

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If it does manage to get the global service going, that should also help Netflix tackle its issue with VPN (virtual private network) users. Netflix subscribers in some countries have been getting around licensing rules by accessing content from other regions, using VPNs to disguise their true location. Netflix has been under pressure to crack down on that - it is dependent on rightsholders for much of its content so the last thing it wants to do is get on their bad side.

‘As long as Netflix’s content libraries continue to vary on a market-by-market basis and the US service remains so much stronger, there will be users who’ll turn to VPNs to get access to better content,’ McGrath says. 

So it's not an issue that's going away soon, but there grounds for optimism. Netflix has a track record in developing its service and can take heart from its progress in Latin America. The company struggled initially because of cultural challenges including different payment systems, but now Mexico and Brazil are two of its six biggest markets. And crucially, few can compete with Netflix’s know-how when it comes to market research (though one of the few that can is Amazon). The firm’s use of data mining and research to predict the success of new shows should continue to be a valuable tool.

Netflix has enough in its arsenal to feel confident about overcoming the international challenges it faces, but it's also been saddled with enough setbacks to mean it'll be a while before we can call the streaming service truly global. Traditional TV may be in the midst of a shake-up but it's far from dead and buried.

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