Tim Y.

November 12, 2010

Netflix’s Expansion Ambitions Showcase Global Opportunities For Online-Only Businesses

Tim Y.

November 12, 2010

DVD-by-post and video streaming movie rental company Netflix recently announced its intent to go international with its lucrative service.

According to Netflix’s Q3 financial report released recently (downloadable PDF), the company reported revenue of $553.2 million—a 31 percent increase over last year. Profit also dramatically increased: $38 million, 26 percent over last year.

As Netflix assesses its growth strategy, its leaders have identified two key opportunities: funneling more resources into the service’s increasingly-popular North American video streaming service, and taking its operations global.

The company recently made significant investments in the Canadian market, launching its service there in Q3. Netflix projects its Canadian service to be profitable in about a year.

“If we continue to gain confidence in a large return on our Canadian investment, and we have confidence in the financial return on further geographic expansion, we’ll look to grow beyond North America starting in the second half of 2011,” said Netflix CEO Reed Hastings in the earnings report.

Netflix’s efficient offline and online delivery system provide compelling advantages to support its global ambitions—as are its existing relationships with global entertainment companies, and its robust content recommendation engine for customers.

"The internet is naturally global in a way that isn't true of regulated broadcast spectrum or local cable," Hastings said. "We see the upside of becoming a global broadband entertainment firm as expanding our addressable market considerably."

The promise of streaming video "has become a reality faster than many of us expected," said Barry McCarthy, the company's CFO. "(M)anaging the evolution of our business model across the digital divide has shifted in our favor more quickly than we forecast it would."

For online-only retailers, MotionPoint recommends these best practices in analyzing the viability of embracing international markets:

Keenly examine your company’s success in its current market. Is sales growth tougher to achieve? This may be a sign of market saturation. To maintain growth, you may want to target new markets.

Analyse your site's traffic. Where do your customers live? If many hail from beyond your current market’s borders, consider how you might better serve those markets online.

It seems obvious, but when targeting a new market, be sure to serve that market in the right language—on the web, in your marketing and with your customer service.

Finally, putting forth the effort to create a marketing strategy for your new market’s website can really pay off. Some opportunities to consider include: co-operative marketing with other entities that are well-positioned within this community, email, direct post and targeted mass media.

For Netflix, the company understands these opportunities and is poised to reap the rewards for years to come.

"As a consequence, we have more upside in the business than ever before, both domestically and abroad," Netflix's CFO McCarthy said in the earnings report. "Our overarching objective is to drive that same virtuous cycle of success in international markets."


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