Netflix has already achieved its biggest goal of 2016: global availability. Though the company will spend the rest of the year working to make that a launch a success, the expanded market footprint will help power Netflix subscribers to 100M by years end.
Netflix turned in solid fourth quarter results in 2015. It grew subscribers in the U.S. by 1.6M, right in line with nScreenMedia estimates and behind the 1.7M guidance the company gave in Q3. International subscribers grew at a brisker pace, increasing 4M, ahead of the 3.3M nScreenMedia estimate and the 3.5M guidance from the company.
Netflix looks likely to face stiffer competition in 2016, both at home and abroad. In the US, premium television providers will continue to enter the market with their own direct-to-consumer subscription VOD services. This will bring well-known TV brands into the mix as those that have so far resisted SVOD begin to pay attention to online services.
Internationally, the global availability of Netflix will generate a flurry of activity as new regional providers enter the market. Unfortunately, Netflix pricing strategy, particularly in poorer nations, could allow local competition to gain a foothold. In many countries Netflix target price of $7.5 – $8 will be challenge for many consumers. Netflix is aware of this issue. Reed Hastings says the company is seeking to appeal to the elite in poorer nations, which he defines as iPhone owners that are comfortable with entertainment delivered in English. However, local providers delivering content in the local language at a substantial discount may end up blunting the appeal of Netflix among its target audience too.
It also doesn’t look like Netflix will release in China any time soon. When asked about this is during the earnings call, Reed Hastings said the company would not rush. He cited the case of the iPhone, which took 10 years to enter the Chinese market and now enjoys the fastest growth there of any other region. To help with regulatory approval in China, Netflix is considering forming a joint venture with a Chinese company for the launch. This would be a unique arrangement for the company as it has chosen to launch on its own everywhere else.
Original content continues to be viewed as key to Netflix’ growth. Ted Sarandos, head of Netflix content, said he plans spend half of the company’s entire content budget on originals in 2016. He said the company will produce 600 hours of original content this year.
What does this mean for Netflix in the coming year?
The long term trend for the company is for slowing growth in the U.S. Quarter-over-quarter growth in was 3.6% in the Q4 2015 in the U.S., 5% in Q4 2014, and 7.4% in Q4 2013. However, increased competition from TV providers launching direct-to-consumer OTT services will not have a substantial impact on the company’s performance. nScreenMedia expects the company to add 5M U.S. subscribers in 2016 to finish just under 50M.
With the release of the global service, Netflix can now reach an additional 190M broadband homes. This will result in a strong Q1 as pent up demand in the new 130 countries helps deliver an additional 5M customers. Growth will moderate somewhat, but remain strong, for the rest of the year. The company could add as many as 19M international subscribers in 2016, bringing it close to parity with the U.S. total. Netflix may well reach 100M worldwide subscribers before the year is out.
Article provided by NScreenmedia.com