Netflix expanding into Latin America
Expanding its reach from two countries to the entire Western Hemisphere, Netflix Inc. will launch its successful online film and television subscription service across Latin America in a bid to maintain its sky-high subscriber growth and stock price.
The Los Gatos, Calif., company, which boasts more than 23.6 million subscribers and has become the nation’s No. 1 movie rental provider, announced Tuesday that this year it will expand into 43 countries in South America, Central America and the Caribbean but not Cuba. The company did not specify a launch date.
The news sent Netflix’s stock soaring 8% on Tuesday, closing at a record $289.63. That put the company’s year-to-date share-price increase at 65%.
Though reports had previously indicated the company was eyeing a move south, analysts said few on Wall Street had expected it would boldly launch simultaneously throughout the entire region.
“This is a big opportunity as they make the transition from a U.S. company into a global one,” said Anthony DiClemente, an Internet and media analyst at Barclays Capital. “It’s a very material revenue opportunity if you extrapolate their ability to do this in other parts of the world.”
As in Canada, where Netflix debuted in September, users in Latin America will have access only to Netflix’s online streaming service. DVDs by mail, the company’s original offering when it launched in 1998, continue to be available only in the U.S.
Analysts estimated that there are about 40 million broadband Internet subscribers in Latin America. Michael J. Olson of Piper Jaffray predicted that about 1.25 million of them would be subscribers by next year, while DiClemente said the number could be much higher, about 3.7 million. That could boost Netflix’s revenue next year anywhere from $120 million to $350 million. Last year the company’s total revenue was $1.67 billion and net income was $115 million.
Investing in new markets will also mean some initial losses at Netflix, however. The company previously said it would lose $50 million to $70 million in the second half of this year from overseas operations.
Netflix’s decision to go into Latin America underscores the region’s growing importance to Hollywood. In 2010 it was the fastest-growing market for movie ticket sales, according to the Motion Picture Assn. of America. Led by regional powerhouses Brazil and Mexico, total box-office revenue grew 25% last year.
Netflix had also been considering going into Britain, a move that has apparently been delayed, according to people briefed on the matter who were not authorized to speak on the record.
Netflix Chief Executive Reed Hastings has identified international expansion as key to his company’s growth. On the company’s last earnings call in April, Hastings said Canada would be a test of how successful the company could be in foreign countries with a streaming-only offering. In seven months, it amassed 800,000 subscribers in the country, a figure that should soon surpass 1 million. Netflix also projected that it would reach profitability in the country by the third quarter of 2011, a full year ahead of its initial estimate.
Foreign markets will be crucial if Netflix is to keep its base of subscribers surging. In the first quarter of this year, its total was up 63% from the previous year, a figure that Hastings has acknowledged is not sustainable in the U.S. alone.
Said Netflix spokesman Steve Swasey, “International is important to keep up our growth rates, and when we saw how quickly the service was embraced in Canada, it was enough to let us know it could succeed elsewhere.”
The company said its service in Latin America would be available in English, Spanish and Portuguese and include a mix of American and local films and television shows. It has yet to announce a price for the region, though analysts said they expected it would be similar to the $8-a-month fee it charges in the U.S. for online streaming.
Netflix did not say how much content would be available in Latin America. It currently has more than 12,000 titles in the U.S. and more than 1,250 in Canada, according to the website InstantWatcher.com, which analyzes data from Netflix’s website.
Digital rights are typically separated by nation or region, meaning Netflix would have to make separate deals to offer the same movies and TV shows in Latin America that users in the U.S. and Canada can currently access.
As recently as April, Hastings said the company wouldn’t expand further overseas until early 2012. The decision to accelerate that timetable for Latin America demonstrates just how fast Netflix’s global plans are moving. Hastings also said at the time that “it will be very smart” to start launching in two foreign markets annually beginning next year.
