Advertisement

SKIP ADVERTISEMENT

Netflix Faces Challengers in Its Push to Expand Globally

Miguel Díez Ferreira of Spain subscribes to two video-streaming services, one of which has licensed Netflix’s programs.Credit...Arnau Bach for The New York Times

Mark Scott and

At first glance, Miguel Díez Ferreira would seem to make an ideal customer for Netflix.

Mr. Díez Ferreira, 44, got hooked on “House of Cards,” the popular political drama starring Kevin Spacey, while living in Miami and San Francisco. After moving to Madrid, Mr. Díez Ferreira’s family still favors American movies and television shows over local Spanish content, mostly so his 3-year-old daughter can practice her English.

But when Netflix becomes available in Spain on Tuesday, Mr. Díez Ferreira won’t be signing up.

“Netflix can’t offer me anything I don’t already get elsewhere,” said Mr. Díez Ferreira, a Spanish businessman who has two subscriptions with rival video-streaming services, one of which has licensed Netflix’s programs, including “Orange Is the New Black,” in Spain.

“If I can watch these shows with what I’m already paying, it doesn’t make sense to get a Netflix account,” he added. “Netflix is getting to Spain really late.”

Mr. Díez Ferreira’s reluctance underscores the obstacles Netflix faces as it pursues its global ambitions. Those plans will take a step forward this week when Netflix adds Spain, Portugal and Italy to its current European roster of 13 countries, including Britain and Germany.

Building its international base has taken on more urgency for Netflix. Last week the company reported third-quarter earnings showing that it had missed its forecast for growth in the United States, with profits dropping 50 percent compared with the year before. Its American operations still represent roughly two-thirds of the company’s revenues.

Netflix, founded almost two decades ago, now operates in more than 50 countries from North America to Asia. The company has signed up almost 24 million paying international subscribers, or roughly one-third of its total users, according to regulatory filings.

Yet Netflix and its efforts to expand overseas are facing a series of challenges that could hamper future growth, including patchwork regulatory restrictions worldwide and stiff competition in individual countries from services that are attracting viewers like Mr. Díez Ferreira.

That is particularly true in the European Union, where current rules often limit what content can be made available in each of the region’s 28 countries. National audiences, many of whom are not fluent in English, often prefer local-language programming, and potential subscribers remain hesitant to pay for premium content.

“We had expectations for Netflix to be doing slightly better, but the broadcasting landscape is very locally oriented,” David Sidebottom, an analyst at Futuresource Consultancy, said in reference to Netflix’s international reach. “People are also more reluctant to pay for a monthly subscription to a video service in France and Germany.”

In many countries, Netflix faces an uphill challenge. Well-established rivals have sprouted from France to India, often mimicking Netflix’s video-on-demand services while promoting local-language content for national audiences. Other media companies like Sky of Britain and Mediaset of Italy also have struck licensing deals with media companies like HBO to offer American programming for Europeans who crave the latest American shows.

And a number of deep-pocketed global tech companies like Amazon and Rakuten, the Japanese e-commerce giant, as well as a flurry of new start-ups, now offer Netflix-like services, which could make it harder for the company to gain a foothold in new territories.

“Every market is growing,” Reed Hastings, Netflix’s chief executive, said recently when asked by investors about the company’s aggressive international expansion plans. “But some are doing better than others,” he acknowledged. “That’s up to us to manage to get the total portfolio to be as fast growing as they are.” Netflix does not provide specific figures on individual countries worldwide.

People across the globe are taking advantage of new technological trends, including ultrafast broadband and affordable smartphones, to stream movies and television programs to their homes and, increasingly, to watch shows on the go.

Netflix, for instance, could roughly double its subscribers worldwide, to 130 million by the end of the decade, with the majority of viewers living outside the United States, according to Ampere Analysis, an independent video analytics firm. That figure would be about triple that of Amazon, its closest rival.

To fend off competitors, Netflix executives also are increasingly signing global licensing deals, often at a significant premium, with major studios providing Hollywood blockbusters across the company’s international markets all at once. Currently, content deals are made on a regional or national level.

And in a bid to win over skeptical international customers, many of whom have never heard of Netflix, the company has teamed up with national cellphone and cable operators to offer the video-streaming service as part of existing video-on-demand offerings. The company has similar agreements with companies like Cablevision and Dish Network in the United States.

“Offering Netflix gives our customers another reason to stay with us,” Marco Patuano, chief executive of Telecom Italia, said in an interview.

Telecom Italia, a former Italian telecom monopoly, will allow people to pay for the video-streaming service through their monthly contracts when it becomes available in Italy on Thursday. “We want to give our customers as much premium content as we can,” Mr. Patuano said.

For Netflix to succeed globally, though, the company must outmuscle people like Jacinto Roca.

As the Spanish chief executive of Wuaki.tv, a Pan-European video-on-demand service owned by Rakuten, Mr. Roca already has 2.5 million subscribers spread across seven European countries, and plans to expand into three more markets by the end of 2015. In Spain, its main market, the company already is viewed as an incumbent, even before Netflix starts its rival service this week.

While American programs represent roughly half of Wuaki.tv’s stable of content, the company, based in Barcelona, also employs small five-person teams in each country where it operates. Their mission is to buy local-language content to match users’ tastes (the company offers both monthly subscriptions and one-time purchases). That local flavor, Mr. Roca says, sets his company apart from Netflix’s mostly American programs.

“Europeans want to watch European content,” he said in an interview. “We have the local knowledge of what people want. You can’t beat that.”

In response, Netflix has started to produce its own non-English-language content, including “Narcos,” the series mostly in Spanish about the rise and fall of Pablo Escobar. Crime dramas in Italian and French are also planned.

The difficulties — and potential rewards — of Netflix’s expansion efforts are most evident in France, one of Europe’s largest media markets.

When the company started its service there last year, local policy makers fretted that the American company would bombard subscribers with English-language content. The company also was criticized for flouting French rules that forced national television channels and other streaming services to subsidize French films. (The country’s regulators eventually extended the levy to include international companies with French customers.)

A year after its introduction, though, Netflix’s service has attracted only 700,000 monthly subscribers, according to industry estimates, primarily by offering English-language content. That puts it slightly behind CanalPlay, a local streaming rival owned by Vivendi, a French media conglomerate. And Molotov, a Paris-based start-up run by several former prominent media executives, also has teamed up with 80 French and international television channels to offer video-on-demand services on a single online platform.

For Manuel Alduy, who runs CanalPlay, the arrival of Netflix has not proved to be the downfall of its local rivals. Instead, he says, the ability of French competitors to offer local content has won support of people who do not solely want to watch American movies or television shows.

“We are a platform that fits with the tastes of a French audience,” said Mr. Alduy. Netflix, he said, “will find a seat in France. But it won’t be the upheaval as people thought it would be.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Netflix, in Its Global March, Finds Rivals Waiting for It . Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT