The 4 big challenges to Netflix's grand plan for world domination
In January, Netflix made the bombshell announcement that it had expanded to over 130 new countries in a single day, bringing it into every major international market except China.
Since then, the results have been mixed.At its last quarterly earnings, Netflix reported good international growth results in the first three months of 2016. But the company's outlook for the second quarter did not go over well with investors. Netflix stock tanked after its forecast for Q2 international-subscriber growth was way below Wall Street targets.
Those numbers will be foremost in Wall Street's mind going into Netflix's Q2 earnings.
There are a few reasons why Netflix could be having trouble in some international markets. And in a note Wednesday, Jefferies analysts led by John Janedis outlined four potential short-term stumbling blocks in Netflix's plan for world domination.
Here they are:
- "Limited amount of local content." This is especially relevant because many regional competitors in developed markets, like Germany and France, have looked to Netflix's success in the US as inspiration to get their own offerings into the market ahead of Netflix's entry. These competitors generally have more localized content.
- "Language barriers." Much of Netflix's content is in English, which can hamper it in countries like Russia, where only 5% of the country speaks English (according to a 2010 census).
- "Expensive price point in certain markets." Netflix has made the choice to not chop down its price point significantly in developing markets. This makes it relatively more expensive compared to competitors, many of which have lower price points.
- "Underdeveloped payment processing and broadband infrastructure." Netflix has been plagued by payment issues even in the US, where it claimed the switchover to "chip" credit cards caused people to accidentally cancel their subscriptions. But the logistical pieces of Netflix's system, which US customers can take for granted, can present bigger problems in developing markets. "Management has acknowledged that in the early stage of its global launch the company will need to adapt to local traditions related to payments, as consumers in many markets do not own credit / debit cards, or are resistant to entering payment information online," the analysts write. "So far, the company has leveraged prepaid / gift cards, phone billing solutions, and is working with local partners. However, we expect the company will wait to see which markets gain the most traction before making long term investments in local payment services."