Netflix, Inc. Has Strange but Serious Content Trouble Abroad

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Netflix, Inc. (NASDAQ:NFLX) was one of the best-performing stocks on Wall Street last year, with a 2015 return of roughly 130%.

And part of the reason for that outperformance has been rapid growth overseas, with Netflix service previously available in 60 countries before this year, when it rolled out in 130 new nations in short order, including Russia and Saudi Arabia.

But while reports indicate Netflix is planning to add another 6 million or so subscribers overseas in the current quarter, the longer-term growth prospects of NFLX stock may run into a snag if this streaming video giant doesn’t tread carefully.

That’s because the unique nature of western movies and TV shows entering more conservative markets abroad can mean harsher content restrictions or even outright bans if Netflix isn’t careful.

Netflix Content Too Violent for Indonesia

Recently, Indonesia’s largest telecom and internet company blocked Netflix, Inc. streams, saying the company didn’t have a permit to operate in the nation and that some of the content was too violent or adult-oriented. This isn’t entirely unexpected, given that Indonesia’s censorship board viewed some shows earlier in the month and noted “there are some movies that we have forbid from being screened in the cinemas.”

And besides, the very fact that there is a formal censorship board in this nation of 250 million people is problematic in and of itself for Western content providers.

It’s tempting to moralize over whether censorship is appropriate. However, it goes without saying that many nations have the power to do the same thing — regardless of how right or wrong these bans on Netflix are.

Take the aforementioned countries currently on Netflix’s list of new markets, Russia and Saudi Arabia. Neither are particularly open nations with a bent toward freedom of expression.

This could create a major challenge for Netflix in the coming years, since the plans for growth increasingly rely on international expansion to succeed. Sure, NFLX remains the gold standard among streaming providers at home, but Netflix earnings in January showed just 14% domestic subscriber growth year-over-year to 44 million, while international streaming was up 64% to 30 million.

If those rates home, in about a year the overseas market will eclipse the domestic audience.

As U.S. growth slows and overseas markets continue to add new viewers, it is crucial that Netflix figure out how to navigate the tricky waters of censorship and variations in taste.

Otherwise, there could be serious challenges to future growth — and given that NFLX stock is priced to perfection with a forward P/E ratio of almost 100, that could be a serious problem for Netflix investors.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/01/netflix-inc-nflx-stock-censorship/.

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