Over There: Netflix’s Salvation Lies in International Expansion

by Anthony John Agnello | November 2, 2011 1:06 pm

netflix 630 flickr 300x225 Over There: Netflix's Salvation Lies in International ExpansionThere’s been no sugar coating for Netflix (NASDAQ:NFLX[1]) the past few months. America has been inundated with stories of the company’s numerous gaffes and subsequent stock flops. Still, Netflix persists. With its reputation bruised and broken here in the U.S., Netflix is looking outward to new markets to start regenerating lost subscribership.

It’s been a bad scene down in Los Gatos, Calif. Shares plummeted down to a 52-week low $74.25 last week. The company lost 800,000 subscribers in a quarter. Netflix started up a new brand, Qwikster, to spin off its by-mail DVD rental business — then announced to the world it was kidding about that after all[2].

And it won’t get better quickly. Netflix is projecting that its subscribership will fall to between 20 and 21.5 million[3] by the end of the fourth quarter, and expansion costs are going to keep the company spending big well into 2012. But it’s through those expansion costs that Netflix hopes to pull itself up and dust itself off.

This past summer, Netflix began offering streaming video service 42 Latin American and Caribbean countries, including Brazil, Mexico and Argentina, where the subscription fees started between the U.S. equivalent of $7.99 and $10. Service in those countries started in September, and Netflix has yet to announce subscriber numbers from these newly minted Latin operations.

Netflix also announced its move into Europe at the end of October — news that was overshadowed by its brutal loss of subscribers in the U.S. While an exact date hasn’t been set, Netflix will bring streaming service to the United Kingdom and Ireland in 2012. While those two countries don’t seem like golden saviors for Netflix on the surface, they represent a significant new subscriber pool, though the company will face competition.

Where Netflix entered an all-but-empty streaming video market in the United States, the Amazon-owned (NASDAQ:AMZN[4]) LoveFilm service has an established streaming service overseas. There also is Sky, the broadcasting service whose streaming video service Sky Movies is available on many of Netflix’s key platforms, including the Xbox 360 game console and the iPhone.

The market still is wide open, though, meaning Netflix has everything to gain. LoveFilm has 1.7 million streaming subscribers[5], but they’re spread out across the U.K., Ireland, Spain, Germany and other European countries. Sky has more than 10 million total subscribers [6]across all of its television services, but it has a limited number of streaming titles available, meaning Netflix’s available content will be a strong lure for those customers.

Speaking with Tech Radar, Sky Movies director Ian Lewis openly admitted LoveFilm has more streaming options than Sky[7]. Netflix, in turn, has even more. LoveFilm has a library of 6,000 streaming videos, where Netflix has a library of 20,000. (LoveFilm’s streaming options have not been merged with Amazon’s own library of 13,000 videos.)

Lucky for Netflix, its content will carry over to these new territories as well. CBS (NYSE:CBS[8]) content, including Showtime programming, carried over into these new territories. Netflix also renewed its relationship[9] with Disney (NYSE:DIS[10]) this week. Considering the announcement came so quickly after Netflix announced its European expansion, it seems likely the company has secured that content for multiple territories.

Netflix will start slow. There are other all-too-potent video markets waiting for the company’s streaming business — film-loving markets like India, China and Japan spring to mind — but the company naturally is going to be cautious in the immediate future given the body blows it has taken in the wake of the subscription hike and Qwikster fiascos.

But the potential growth in these countries means Netflix’s first quarter of 2012 might not be as catastrophic as expected.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[11] and become a fan of InvestorPlace on Facebook[12].

Endnotes:
  1. NFLX: http://studio-5.financialcontent.com/investplace/quote?Symbol=NFLX
  2. kidding about that after all: http://investorplace.com/2011/10/netflix-rewinds-dvd-vs-streaming-split-but-damage-is-already-done-qwikster-nflx/
  3. will fall to between 20 and 21.5 million: http://investorplace.com/2011/10/netflix-stock-nflx-qwikster-subscribers/
  4. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  5. LoveFilm has 1.7 million streaming subscribers: http://news.cnet.com/8301-13506_3-20124565-17/netflix-to-expand-to-u.k-ireland-in-early-2012/
  6. more than 10 million total subscribers : http://corporate.sky.com/about_sky/key_facts_and_figures.htm
  7. LoveFilm has more streaming options than Sky: http://www.techradar.com/news/television/sky-welcomes-netflix-and-lovefilm-competition-1038221
  8. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS
  9. Netflix also renewed its relationship: http://in.reuters.com/article/2011/10/31/idINIndia-60225620111031
  10. DIS: http://studio-5.financialcontent.com/investplace/quote?Symbol=DIS
  11. @ajohnagnello: http://twitter.com/#%21/ajohnagnello
  12. InvestorPlace on Facebook: http://www.facebook.com/pages/InvestorPlace/178906405484848

Source URL: http://investorplace.com/2011/11/netflix-nflx-salvation-in-foreign-expansion/
Short URL: http://invstplc.com/1nztoZH