Netflix bets on international expansion to keep growing Mathilde Hamel Thursday, 13 Mar 2014 www.cnbc.com Netflix is on a roll. It's launched high-profile and critically acclaimed shows, and the stock is up more than 140 percent in a year. Where does it go from here? Abroad. The on-demand Internet streaming service is about to launch one of its biggest international expansion campaigns yet. "We plan later this year to embark on a substantial European expansion," Reed Hastings, CEO of Netflix, said in a letter to shareholders recently. "It's a very strategic part of their business model," said Tuna Amobi, a media and entertainment equity analyst at Standard & Poor's. "A lot of international markets are growing relatively fast and it presents more compelling opportunities." Canada became the first foreign country to have live streaming on demand in 2010. Netflix entered the Dutch market in 2013; Latin and South America and the Caribbean in 2011; and the United Kingdom, Ireland and countries in Scandinavia in 2012. (It is now streaming in more than 40 countries.) What's left? The rest of Europe, Asia, Africa and Oceania. Demand for Netflix outside U.S. borders is growing. During the third quarter of 2013, Netflix registered more international subscribers than domestic ones for the first time since its launch in the U.K. and Ireland in July 2012. "There are only so many people in the United States," said Anthony Wible, media and entertainment analyst at Janney Montgomery Scott. "The rest of the world is far bigger and the addition of domestic subscribers will start to slow down at some point." The company expects to add 1.6 million new international subscribers in the first quarter of 2014 "If you look at the territories where Netflix already is, the margins for those markets have been expanding," said Anthony DiClemente, an Internet and media analyst at Nomura. "There is an impact of investment in these new territories like the Nordics or the Netherlands." Although every market is different, S&P's Amobi said that Netflix's successful expansion in the U.K. made the company very confident for a future launch in other parts of Europe. "When they look at a market to launch, they look at the broadband penetration and how they can get subscribers," he said. "They look at four or five indicators before making their decision. In Korea, for example, the competition is strong. In China, they would have to overcome much more difficulties." With expansion planned in countries like Germany or France, Netflix is targeting the fourth and sixth largest markets in the world, where "the broadband speed is fast enough to deliver the product," according to DiClemente. With more than 66 million inhabitants and very competitive broadband services, France could be a lucrative market. But with very strict laws regarding its cinema industry and a complicated Internet system, it's a tough environment. "It has been two years since the first announcement of Net.

1. Netflix bets on international expansion to keep growing
Mathilde Hamel
Thursday, 13 Mar 2014
www.cnbc.com
Netflix is on a roll. It's launched high-profile and critically
acclaimed shows, and the stock is up more than 140 percent in a
year.
Where does it go from here? Abroad.
The on-demand Internet streaming service is about to launch
one of its biggest international expansion campaigns yet.
"We plan later this year to embark on a substantial European
expansion," Reed Hastings, CEO of Netflix, said in a letter to
shareholders recently.
"It's a very strategic part of their business model," said Tuna
Amobi, a media and entertainment equity analyst at Standard &
Poor's. "A lot of international markets are growing relatively
fast and it presents more compelling opportunities."
Canada became the first foreign country to have live streaming
on demand in 2010. Netflix entered the Dutch market in 2013;
Latin and South America and the Caribbean in 2011; and the
United Kingdom, Ireland and countries in Scandinavia in 2012.
(It is now streaming in more than 40 countries.)
What's left? The rest of Europe, Asia, Africa and Oceania.
Demand for Netflix outside U.S. borders is growing. During the
third quarter of 2013, Netflix registered more international
subscribers than domestic ones for the first time since its launch
in the U.K. and Ireland in July 2012.
"There are only so many people in the United States," said

2. Anthony Wible, media and entertainment analyst at Janney
Montgomery Scott. "The rest of the world is far bigger and the
addition of domestic subscribers will start to slow down at some
point."
The company expects to add 1.6 million new international
subscribers in the first quarter of 2014
"If you look at the territories where Netflix already is, the
margins for those markets have been expanding," said Anthony
DiClemente, an Internet and media analyst at Nomura. "There is
an impact of investment in these new territories like the Nordics
or the Netherlands."
Although every market is different, S&P's Amobi said that
Netflix's successful expansion in the U.K. made the company
very confident for a future launch in other parts of Europe.
"When they look at a market to launch, they look at the
broadband penetration and how they can get subscribers," he
said. "They look at four or five indicators before making their
decision. In Korea, for example, the competition is strong. In
China, they would have to overcome much more difficulties."
With expansion planned in countries like Germany or France,
Netflix is targeting the fourth and sixth largest markets in the
world, where "the broadband speed is fast enough to deliver the
product," according to DiClemente.
With more than 66 million inhabitants and very competitive
broadband services, France could be a lucrative market. But
with very strict laws regarding its cinema industry and a
complicated Internet system, it's a tough environment.
"It has been two years since the first announcement of Netflix's
launch in France," said Matthieu Soule, a strategic analyst at
Atelier BNP Paribas. "It is now expected for next fall, but I
would not be surprised if it were delayed by another six
months."
First, Netflix would need to partner up with an Internet service
provider, as French households are all equipped with a "box,"
providing cell and landline phone, television and Internet
services at the same time.

3. "Right now, Orange would be the best bet for Netflix," said
Soule. "It is the market leader with a market share of around 40
percent. Moreover, it has a European presence in countries like
Poland or Spain."
Another issue: Netflix would have to pay taxes on French soil in
order to finance French culture—a condition that cannot be
circumvented, French Minister of Culture and Communications
Aurelie Filippetti told weekly newspaper le Journal du
Dimanche.
Moreover, the country has very strict laws when it comes to its
cinema. Netflix will most probably have to wait three years
before being able to stream films released in France on its
platform.
"I don't think the language is going to be a problem," said
Soule. "But it could be complicated for Netflix to launch in
France with only American content, because French people care
about their French heritage. If you look at the French box office
of these last 50 years, in the top 100 movies—45 are French."
"No one is expecting this expansion to be an overnight win,"
said Amobi. "It will take a year, maybe more for Netflix to
become a competitive player and become viable in this market."
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QuQuestion: After reading the article on Netflix posted under
Course Content, identify several trends & developments in the
various international business environments (Physical;
Economic; Technological; Political; Legal; Socio-cultural &
Competitive), which appear to have influenced the decisions of
the company's marketing executives to pursue international
expansion as a strategic priority.
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