A Case Study
2022-05-05
Netflix is a prime example of a company successfully expanding its operations internationally. Starting in just one country, the United States, Netflix has expanded into over 190 countries in just seven years!
Despite the current challenges Netflix is facing concerning new subscribers, the company managed to expand globally due to careful planning and execution successfully. This article will explore three key areas that helped the streaming service achieve success, namely:
1. Market choice;
2. The Role of Data and Localisation; and
3. How the company overcame Challenges.
So let’s get started!
1. How Netflix Carefully Chose Its International Markets
When entering into new countries, Netflix initially chose its following markets based on similarities to limit potential cultural and geographical challenges.
Canada
One of the countries Netflix first considered for its global expansion was Canada. This was because the market was very similar to the United States regarding culture, language and geography. This made it easier for the company to expand into Canada and tailor its content offerings to suit this new market.
Netflix officially launched into the Canadian market in September 2010, kickstarting its first foray into international markets. Pricing was an essential consideration to win market share, and the initial subscription fee was priced at $7.99 per month, which Netflix CEO Reed Hastings referred to as “the lowest, most aggressive price we’ve ever had anywhere in the world.” This was a key initiative in Netflix’s business model to attract users quickly.
Even with the low price tag, Canadian content availability was minimal. According to Canadian Business Online, in the United States, by 2012, there were 10,625 distinct Netflix titles, whereas in Canada, there were only 2,647.
However, despite the initial relative lack of content, it took the company less than a year to attract one million subscribers, roughly three per cent of Canada’s population. This was an impressive feat!
The choice of Canada proved to be an excellent success for Netflix. It exemplifies how choosing a similar market to your home country can be a relatively easy first step in your international expansion plans.
Latin America & the Caribbean
Once it had expanded into Canada, the next logical step in the Netflix global expansion journey was to expand into Latin America and the Caribbean due to the region’s geographical proximity to the United States.
At this point, the business had around 23 million subscribers across the United States and Canada. Successful expansion into the Latin American market would provide Netflix access to over 600 million potential new subscribers.
On announcing its international expansion into the region, Netflix’s share price surged by 8%, taking it to record levels.
In September 2011, the firm began its expansion to 43 countries and territories in Latin America and the Caribbean, with content available in Spanish, English, and Portuguese. Brazil was the first country in Latin America to go live with the service on September 5th. The streaming service was priced at around $9.10, making it more expensive than in North America.
Following Brazil, Netflix continued its expansion in Latin America, and the company launched in Argentina, Chile, Colombia, and Mexico in the subsequent days before expanding into 38 countries in the next weeks. The company partnered with CBS, Miramax, and Showtime to share local content in the region.
However, there were challenges in Netflix’s global expansion into Latin America and the Caribbean. The lack of high-speed internet compared to the US and Canada proved to be an initial setback.
For example, in Brazil, only 20% of the population had an internet speed greater than 500 kB/s a second in 2011. This proved to be an issue as Netflix required rates of 800 kB/s a second to stream its content.
A second major challenge was that the banking system in Latin America was not used to monthly recurring payments for a service, and given that this was the first streaming service to launch in the region, with no competitors, there was a reasonable degree of initial apprehension around the concept.
Nonetheless, while this hindered rapid growth, there was enough uptake to consider the expansion into the region a success.
Europe
Following the above-mentioned global expansion successes, Netflix turned to Europe in 2012. The expansion into the United Kingdom was a great success, and by 2014, one in ten British households were subscribed to Netflix.
Netflix developed a great strategy about its international expansion based on its choice of content in new regions. “They start with a tiny offer that doesn’t cost them much money and lowers their risk. Then they collect specific information about what people enjoy, and programming and investment around consumer behaviour are organized,” according to Christof Baron, CEO of the world marketing firm Mindshare.
In the UK, they started with content from the BBC, Channel 4, and ITV to gain initial traction and then started to review the type of content people enjoyed.
2. The Role of Data and Localisation in Expanding Internationally
Tailored Thumbnails
Netflix has excellent attention to detail and even considered how viewers from different geographies would react to other images on the thumbnail.
People are far more likely to view something if the thumbnail shows something that appeals to them. The old saying goes that a picture is worth a thousand words, and in Netflix’s case, the more you watch, the more likely you are to keep your subscription.
Based on this, Netflix cleverly generates many possible thumbnails for each piece of content. The Netflix algorithm then looks at your viewing habits to match the most relevant thumbnail.
If you watch a lot of romantic comedies, Netflix will show you a Stranger Things thumbnail with Winona Ryder and David Harbour to capture your interest. If you watch more comedy content, the Netflix algorithm will instead show you a Stranger Things thumbnail with the kids dressed up as Ghostbusters.
Personalization algorithms
Netflix used data to select its following markets carefully and tailor content based on the regions they were targeting.
Netflix’s personalization algorithms enabled the company to understand global user behaviour and preferences. This allowed them to create a content strategy tailored to each market, which was critical to their success.
When entering Asia, the company learned that Asian audiences were likelier to watch shows with subtitles rather than dubbed versions. In contrast, Latin American audiences preferred dubbed content. This data proved invaluable in Netflix’s international strategy for localising content.
Language Considerations
To ensure that its content was accessible to as many people as possible, Netflix also translated its content into local languages and introduced subtitles and dubbing. Viewers in different countries could now enjoy Netflix’s wide range of content.
In English-speaking countries, Netflix aims to localize foreign titles via English subtitles. At the same time, in other important markets, such as France, Germany, Italy, Spain, and Japan, the company opts to subtitle or dub content based on local content preferences.
Netflix offers Hindi, Tamil, Telugu, Marathi, and Bengali content in India. In China, it provides a range in Mandarin and Cantonese.
By localising its content, Netflix has achieved global growth and become one of the most popular streaming services in the world.
Original Content
Not only does Netflix localise content, it also makes original content based on local preferences. When expanding into Japan, Netflix saw that Japanese users watched many anime. In response, Netflix created an original anime series called “Devilman Crybaby”, which was extremely popular.
More recently, Netflix began to take this strategy of tweaking local content to help its content simultaneously go global. For example, when the Korean movie Parasite became the first non-English language movie to win the Oscar for Best Picture in 2020, Netflix took real notice. K-Pop was globally successful, and on reviewing its data to see what sort of content global audiences were interacting well with, Netflix noticed a lot of success with Hunger Games.
Netflix took this analysis and created content in the form of the Korean show Squid Game, resulting in mass international success. Squid Game became the most-watched show in the history of Netflix within 6 weeks of launching.
3. Challenges in entering new markets
Despite the phenomenal global success discussed above, Netflix’s expansion was not trouble-free and faced several challenges when entering new markets. We have already touched upon some of the issues it faced in Latin America concerning internet speed and the novelty factor. but what other challenges did it face?
Legal Issues
In Australia, Netflix fell into hot water with local laws. TV Stations in Australia rejected Netflix’s classification as a technology company rather than a broadcaster, allowing it to avoid having to comply with certain local regulations. In response, the Australian government considered introducing a law forcing streaming companies like Netflix to invest in the local market.
Censorship Issues
Netflix also faced censorship challenges in markets including China, North Korea, and Saudi Arabia. Based on values held in different regions, certain content relating to the consumption of drugs, alcohol, or of a sexual nature would have to be adapted or removed completely to satisfy local societal values and rules.
Netflix is currently unavailable in China but continues exploring options for entering the market.
Despite these challenges, Netflix has achieved global growth and become one of the most popular streaming services in the world. As of the beginning of the second quarter of 2022, Netflix has around 222 million international subscribers in over 190 countries, making the business a fantastic success.
Lessons from Netflix’s Global Expansion Journey
The Netflix global expansion journey into over 190 international markets is a phenomenal success. This growth would not have been possible without Netflix’s careful planning and execution. So, what are the key lessons that expanding companies seeking to have similar success on a global scale can take from this?
- You can’t be in every country at once – start with those countries whose markets are most closely aligned to yours to ensure minimal cultural, language and regulatory complexity.
- Test the market initially and gather data to help you make decisions before fully committing and going all in.
- Even the most successful companies can face setbacks – don’t be disheartened by any challenges.
- Localisation is critical to success in new markets – if you don’t adapt your product, service, or offering to local markets, you have little to no chance of success.Ultimately, by understanding the needs and preferences of its target market, Netflix created a service that people loved. And by making their content accessible to as many people as possible, they were able to conquer foreign markets rapidly.
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