Netflix (NFLX, Financial) provides on-demand internet streaming media available for the U.S. viewers to South America and parts of Europe (Denmark, Ireland, The Netherlands, Norway, Sweden, Finland, United Kingdom, France, Switzerland, Austria, Belgium, Luxembourg and Germany). The company, which is headquartered in Los Gatos, California,Ă‚ came into being in 1997. Come 2009, the subscriptions surpassed subscription-based service which started in 1999. It now offers 100,000 titles on DVD to subscribers in over 40 countries and is looking to expand its services to countries not yet under the umbrella.
However, what still remains the pressing concern after its third-quarter 2014 results is the slow rate of subscriber growth. Experts are nevertheless hopeful that expanding diversified portfolio is likely to churn out profit and accelerate growth. Plus, the new movie distribution venture embarked upon by the company is expected to fuel subscriber growth in the long haul.
Plans for expanding the business
Netflix has fixed its eye on cutting across barriers to expand the business beyond the U.S. and debut in New Zealand and Australia. Figures suggest that 80% of Netflix’s revenues are expected to be wafted out of the overseas business. Hence the company will be in arms against any subscriber loss in its stronghold, the domestic market.
Moreover, Netflix has a remarkable rate of subscriber growth which seems to have boosted significant revenues which is aligned with the growth of the company’s paid streaming membership which has grown noticeably as a percentage of total subscription. Inching forward, we are hopeful about improving the paid subscriber base of the streaming segment that means both domestic and international market will see growth. The growth factors will hit home with revenue generation and outgrow content and marketing spending accentuating margin growth.
Competition
Netflix is rivalled by bellwethers like Amazon.com (AMZN, Financial) and Time Warner’s (TWX, Financial) HBO, which also renders online streaming services around the U.S. Verizon’s (VZ, Financial) joint venture with Coinstar (CSTR, Financial), beefs up the competition thus mounting excessive performance pressure on Netflix. Let alone the domestic players, Netflix faces significant competition from the regional players in the international market as well.
To have much draw in the international market, technology investments and marketing expenses also double up. Although it looks like the recent expansions are likely to tarnish the company’s profitability in the near term, effective cost management will help the company to tide over the situation and raise future prospects.
Overseas expansion hurdles
It is expected that Netflix will face much elbow-grease to find its feet in Australia because, like others around the world, thousands of Australians have been using the U.S. version of Netflix using masking services that spoof their location. More surprisingly, according to a survey conducted recently, it was the second most paid popular content company in Australia before even launching.
Furthermore, the nation is the father of video piracy and the cost of accessing content and software are unevenly high deep down.
The only way out of the problem is reasonably pricing the services to outsmart the U.S. version of Netflix that’s doing the rounds in Australia already. It needs a lot of sweat to convince though. Which adds to the woes of Netflix who has decided not to launch two hit shows in the U.S., House of Cards and Orange is the New Black, in both Australia and New Zealand which might adversely affect its expansion. There is no mention of these shows in their release agenda and a company spokesman kept the decision under wrap replying with “stay tuned” in an e-mail.
The country’s dominant TV operator Foxtel which is controlled by Rupert Murdoch’s News Corporation has pulled strings to hold back the telecast of the current seasons of those shows. Here’s hoping a rectification of the situation will be considered at the time of launch.
There’s also an apprehension looming large that the Netflix’s content offering will be half-hearted as compared to that in the U.S. For example, Canada has Netflix since 2010, there, the use of virtual private networks by the natives to enter the ampler U.S. service remains the fad ever since.
