Netflix, Inc. (NFLX) Can Benefit From Developing Non-English Content

Netflix, Inc. (NFLX) Can Benefit From Developing Non-English Content
NFLX Photo by Matt Perreault

Netflix, Inc. (NASDAQ:NFLX) has more than tripled its stock price this year, but if it wants to continue growing it will need to prove that it can attract subscribers in foreign markets as successfully as it has in the US. For Canada, the UK, and Australia this poses less of a problem since Netflix, Inc. (NASDAQ:NFLX) already has a wealth of English-language content, even if cultural tastes vary from country to country. But countries with similar economic and cultural trends, but a different primary language, could prove to be more difficult, especially if local alternatives spring up.

Netflix will benefit from secular internet TV growth

“As the largest and most innovative company in the Internet TV sector, we believe Netflix clearly has — and should continue to — benefit from the secular growth in Internet video consumption. In the U.S., where Netflix began, its success and brand are well established,” write Citi analysts Mark May and Kevin Allen. “Outside the U.S., Netflix’s business is much earlier and still scaling, but the opportunity appears significant.”

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May and Allen believe that the Netherlands, Sweden, the US and Germany are the most suited to web-based disruption of video content, but so far the focus has been on developing and acquiring rights to English language content. This isn’t surprising; Netflix was founded in the US, and it’s easier to market English language content in Europe than the other way around (subscriptions to nothing but Dutch-language programming doesn’t sound terribly promising).

Non-English language content is important

“The US, Canada and Australia are already over-indexing on web-based video delivery,” write May and Allen. ”We suspect the Anglosphere regions are over-indexing given the propensity of consumers in the regions to watch – and enjoy – web-based video content that’s produced in the US. But, as content tailored to these Nordic countries grows, the Netherlands and Sweden should see the most significant near-term growth in web-based video consumption.”

netflix market penetration 1213

Netflix, Inc. (NASDAQ:NFLX) has shown that it’s willing to spend money developing content that doesn’t yet have an audience to secure its position in the market. Ultra high-definition TV barely exists, but Netflix, Inc. (NASDAQ:NFLX) is developing capacity now so that it doesn’t give some scrappy start-up a chance to one-up it once the new TVs become more common. It’s also committed to making a broad range of original content, from the highbrow Orange is the New Black, to an upcoming superhero series. Even if Netflix, Inc. (NASDAQ:NFLX) can’t justify developing original, non-English content based on the number of subscribers it has in Europe, no one should be surprised if it decides that creating such niche content is important for its long-term growth.

Citi has increased its price target from $355 to $390 to account for the expected international growth, but still gives the stock a Neutral rating.

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Michael has a Bachelor's Degree in mathematics and physics from Boston University and Master's Degree in physics from University of California, San Diego. He has worked as an editor and writer for several magazines. Prior to his career in journalism, Michael Worked in the Peace Corps teaching math and science in South Africa.
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