With soaring shares, Netflix sets sights overseas

Netflix plans to expand its reach to include 200 countries by 2017, while also investing billions in the production of original TV series and movies. 

First Look

To start 2015, Netflix took a gamble. The American streaming service announced its plans to expand to 130 more countries, in spite of the risks of entering developing markets with new cultures and languages, different internet infrastructures, and varying consumer comfort with online credit-card payments.

More than a year later, that gamble appears to have paid off.

Netflix’s shares in the September quarter soared about 20 percent in late trades Monday, as its mix of original shows and a library of classics drew in 3.2 million new international subscribers in the third quarter. The analyst estimates for global subscribers averaged 2.01 million.

The rise in its shares from a close of $99.80 to $119.82 is another example of how Netflix has defied expectations as it redefines how viewers around the world watch television and movies. Analysts continue to worry about the American market for streaming services maturing, and the challenges of global expansion, such as uneven internet services and overseas regulations. But Netflix’s growth also shows a global, almost universal appeal to its edgy, original shows such as “Stranger Things,” “Narcos,” and “House of Cards.”

“This is a weird year,” Michael Nathanson, an analyst at MoffettNathanson, told The Wall Street Journal. “In some ways, we’re being swung around by our inability to forecast what’s a brand new market, which is the rest of the world.”

Netflix is now available in 190 countries, following its expansion from 50 countries starting in 2015. In July, the company reported about 83 million subscribers worldwide. Since then, Netflix says it has gained an additional 3.2 million.

In a video with analysts, Netflix attributed its surprising success this quarter to original shows such as “Narcos,” the Latin American drug drama with nearly 80 percent of its dialogue in Spanish, and “Stranger Things,” the science fiction thriller set in 1980s Indiana.

Netflix plans to continue to invest in the production of original content, increasing content spending to $6 billion next year, a $1 billion increase from 2016, it said, as it continues to try and grow its customer base. 

While Netflix has seen its shares surge in recent years, it has experienced a slowdown in domestic growth of late from competition from the likes of Hulu and Amazon streaming services. 

“Turning a profit off the global expansion is the next challenge,” writes The Wall Street Journal. “Netflix said it expects to lose more money from its international operations next quarter as it continues to invest in original content, targeting more than 1,000 hours of original programming next year, a roughly two-thirds increase.”

And Netflix needs the money, in part, to pay for syndication rights to hit television shows such as “Arrested Development” and “Lost,” writes The Guardian’s Sam Thielman:

Netflix likes to tell the industry that its innovation is selling TV over the internet, but it might be closer to the truth to say that it was first to see $10 [billion] in unglamorous syndicated reruns.

And that’s the hardest truth of the streaming economy: the bulk of Netflix’s billions don’t go into expensive originals like Luke Cage and Stranger Things. They go into buying old-fashioned shows such as Star Trek: Deep Space Nine and Buffy the Vampire Slayer in bulk.

However, Netflix has invested in producing original content abroad. The “Marseilles” series was the first French original production for Netflix. It also ordered its first original series in India, “Sacred Games,” an adaption of the 2006 bestselling novel by Vikram Chandra. Netflix said the series would be filmed on location in India, and will be created by Phantom Films, a local production company.

These thrillers, combined with Netflix mainstays, have been a formula for success for the company.

"Part of what’s been fascinating for us is that the 60 markets we've been in, the content that succeeds tends to be somewhat consistent," Elizabeth Bradley, Netflix's vice president of content acquisition told Wired in January. "We tend to find it's not like one set of titles does well in America and not overseas.... We think we can tell global stories that will resonate the same." 

This report contains material from Reuters.