How Netflix Expanded to 190
Countries in 7 Years
Louis Brennan
October 12, 2018 UPDATED October 12, 2018
Fernando Trabanco Fotografía/Getty Images
Netflixʼs global growth is a big factor in the companyʼs success. By 2017
it was operating in over 190 countries, and today close to 73 million of its
some 130 million subscribers are outside the U.S. In the second quarter
of 2018, its international streaming revenues exceeded domestic
streaming revenues for the first time. This is a remarkable achievement
for a company that was only in the U.S. before 2010, and in only 50
countries by 2015.
Other U.S. internet companies have scaled internationally, of course
(Facebook and Google are two obvious examples). But Netflixʼs
globalization strategy, and many of the challenges itʼs had to overcome,
are unique. Netflix must secure content deals region by region, and
sometimes country by country. It also must face a diverse set of national
regulatory restrictions, such as those that limit what content can be
made available in local markets. International subscribers, many of whom
are not fluent in English, often prefer local-language programming. And
many potential subscribers, accustomed to free content, remain hesitant
to pay for streaming services at all.
Furthermore, strong competition in streaming already exists in many
countries. In France and India, for example, homegrown leaders offer
local-language video content, thus depriving Netflix of first-mover
advantage. In some countries, like Germany and India, rivals such as
Amazon Prime were already established. Yet the majority of Prime
subscribers are in the U.S., and Netflix has managed to make inroads into
even those markets where Prime arrived first. Now Netflix, with its global
reach, has more subscribers worldwide than all other pure streaming
services combined.
Netflixʼs success can be attributed to two strategic moves — a threestage expansion process into new markets and the ways it worked with
those markets — which other companies looking to expand globally can
use too.
Netflix did not try to enter all markets at once. Rather, it carefully
selected its initial adjacent markets in terms of geography and psychic
distance, or perceived differences between markets. For example, its
earliest international expansion, in 2010, was to Canada, which is
geographically close to and shares many similarities with the United
States. Netflix was thus able to develop its internationalization
capabilities in locations where the challenges of “foreignness” were less
acute. In doing so, the company learned how to expand and enhance its
core capabilities beyond its home market.
In that sense, the first phase of its globalization process was consistent
with the traditional model of expansion. But from the experience and
learning it gained in that process, Netflix developed the capabilities to
expand into a diverse set of markets within a few years — the second
phase of the process.
This second phase, involving a faster and more-extensive international
expansion, saw Netflix extend its footprint to some 50 countries, drawing
on the lessons it learned in the first phase in order to operate in a wider
variety of markets. The choice of those markets was influenced by their
degree of attractiveness, such as from shared similarities, the presence
of affluent consumers, and the availability of broadband internet. The
second phase helped Netflix continue learning about internationalization
and partnering with local stakeholders while also growing its revenue.
Since this phase involved expanding into more-distant markets, it was
supported by investments in content geared toward the preferences of
those geographies, as well as technological investments in big data and
analytics.
The third phase, during which a much-accelerated pace of entry brought
Netflix to 190 countries, used everything it had learned from the first two
phases. It had gained expertise in the content people prefer, the
marketing they respond to, and how the company needed to organize
itself. Now Netflix focused on adding more languages (including for
subtitles), optimizing its personalization algorithms for a global library of
content, and expanding its support for a range of device, operation, and
payment partnerships. Six months after entering Poland and Turkey in
2016, for example, Netflix added the local languages to its user interface,
subtitles, and dubbing. As with the markets it had entered earlier, the
company launched a service targeted at early adopters, and then iterated
quickly to add features to attract a wider audience.
Recognizing that in some parts of the world, particularly emerging and
developing economies, mobile is the primary way most people access
the internet, Netflix also began placing a greater emphasis on improving
its mobile experience, including sign-ups, credentials and authentication,
the user interface, and streaming efficiency for cellular networks. It has
been developing relationships with device makers, mobile and TV
operators, and internet service providers as well.
Netflix has worked with, and responded to, the new markets itʼs
entered. The company has partnered with key local companies to forge
win-win relationships. In some cases, it has joined with cell phone and
cable operators to make its content available as part of their existing
video-on-demand offerings. For example, when Vodafone launched a TV
service for its customers in Ireland, it included a dedicated Netflix button
on its remote controls. More recently, Netflix announced deals with
Telefonica in Spain and Latin America and with KDDI in Japan.
And while Netflix believes that “great storytelling transcends borders,” in
the words of Ted Sarandos, Netflixʼs chief content officer, the company
has responded to customer preferences for local content: Currently itʼs
producing original content in 17 different markets. Importantly, Netflix
sees such content production as not just local-for-local, but also localfor-global. In other words, it aims to have content attract an audience not
only locally, where it is produced, but also more widely. As such, Netflix
potentially reaps the benefits of investing in local content all around the
world.
To address the protracted process of signing content deals with major
studios on a regional or local basis, it has increasingly pursued global
licensing deals so that it can provide content across all of its markets at
once. Netflix has also begun to source regionally produced content,
providing a win-win for these producers, whose local content can find a
global audience.
The company is also applying its deep customer insight to international
markets, using that knowledge to create content that appeals to a wide
range of customer segments. Despite its very rapid internationalization,
Netflix implemented in all markets the same customer-centric model of
operations that had been key to its success in the United States. It
experiments with customer usage data to determine which offerings
work best. Because it operates in so many countries, Netflix is able to try
different approaches in different markets. As the number of its
international subscribers grows, the performance of its predictive
algorithms continues to improve.
Netflix has demonstrated that developing country-specific knowledge is
critical for success in local markets. This knowledge needs to be both
broad and deep, extending across political, institutional, regulatory,
technical, cultural, customer, and competitor domains. Understanding
local cultures ensured that Netflix could be sensitive to and respond to
their differences. This enhanced its credibility and helped it forge smooth
relationships with key stakeholders.
Taken together, the elements of Netflixʼs expansion strategy constitute a
new approach that I call exponential globalization. Itʼs a carefully
orchestrated cycle of expansion, executed at increasing speed, to an
increasing number of countries and customers. The approach has helped
the company expand far more quickly than competitors. Going forward,
Netflix will face increasing competition not only from other global players
such as Amazon Prime but also from new entrants and regional or local
players. In that regard, it will have to continue to expand its blending of
global and regional content.
For a variety of market and technological factors, including the absence
of high-speed broadband and a very low level of internet penetration in
many parts of the world, exponential globalization was infeasible until a
few years ago. With the growth of the internet in general, including on
phones, tablets, and smart TVs, Netflix has demonstrated that this
strategy is now a viable option. But it requires a mastery of local contexts,
including the ability to acquire local knowledge and to demonstrate
sensitivity and responsiveness. With the increasing prevalence of winnertake-all markets, companies operating in such markets will need to
pursue an internationalization strategy similar to Netflixʼs. And when it
comes to Netflixʼs next stage of growth, and how it will respond to new
challengers, the sequel appears likely to be as captivating as the original.
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