globalization and information

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Global Strategy

How Netflix Expanded to 190 Countries in 7 Years

by Louis Brennan

October 12, 2018, Updated October 12, 2018

Summary.   

Fernando Trabanco Fotografía/Getty Images

Netflix’s global growth is a big factor in the company’s success. It

operates in over 190 countries, and its international streaming revenues now

exceed its domestic revenues. But only eight years ago Netflix was only in the U.S.

How did it expand so quickly? First, it... more

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Netflix’s global growth is a big factor in the company’s success. By

2017 it was operating in over 190 countries, and today close to 73

million of its some 130 million subscribers are outside the U.S. In the

second quarter of 2018, its international streaming revenues exceeded

domestic streaming revenues for the first time. This is a remarkable

achievement for a company that was only in the U.S. before 2010, and

in only 50 countries by 2015.

Other U.S. internet companies have scaled internationally, of course

(Facebook and Google are two obvious examples). But Netflix’s

globalization strategy, and many of the challenges it’s had to

overcome, are unique. Netflix must secure content deals region by

region, and sometimes country by country. It also must face a diverse

set of national regulatory restrictions, such as those that limit what

content can be made available in local markets. International

subscribers, many of whom are not fluent in English, often prefer

local-language programming. And many potential subscribers,

accustomed to free content, remain hesitant to pay for streaming

services at all.

Furthermore, strong competition in streaming already exists in many

countries. In France and India, for example, homegrown leaders offer

local-language video content, thus depriving Netflix of first-mover

advantage. In some countries, like Germany and India, rivals such as

Amazon Prime were already established. Yet the majority of Prime

subscribers are in the U.S., and Netflix has managed to make inroads

into even those markets where Prime arrived first. Now Netflix, with

its global reach, has more subscribers worldwide than all other pure

streaming services combined.

Netflix’s success can be attributed to two strategic moves — a three-

stage expansion process into new markets and the ways it worked

with those markets — which other companies looking to expand

globally can use too.

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Netflix did not try to enter all markets at once. Rather, it carefully

selected its initial adjacent markets in terms of geography and psychic

distance, or perceived differences between markets. For example, its

earliest international expansion, in 2010, was to Canada, which is

geographically close to and shares many similarities with the United

States. Netflix was thus able to develop its internationalization

capabilities in locations where the challenges of “foreignness” were

less acute. In doing so, the company learned how to expand and

enhance its core capabilities beyond its home market.

In that sense, the first phase of its globalization process was

consistent with the traditional model of expansion. But from the

experience and learning it gained in that process, Netflix developed

the capabilities to expand into a diverse set of markets within a few

years — the second phase of the process.

This second phase, involving a faster and more-extensive

international expansion, saw Netflix extend its footprint to some 50

countries, drawing on the lessons it learned in the first phase in order

to operate in a wider variety of markets. The choice of those markets

was influenced by their degree of attractiveness, such as from shared

similarities, the presence of affluent consumers, and the availability of

broadband internet. The second phase helped Netflix continue

learning about internationalization and partnering with local

stakeholders while also growing its revenue. Since this phase involved

expanding into more-distant markets, it was supported by

investments in content geared toward the preferences of those

geographies, as well as technological investments in big data and

analytics.

The third phase, during which a much-accelerated pace of entry

brought Netflix to 190 countries, used everything it had learned from

the first two phases. It had gained expertise in the content people

prefer, the marketing they respond to, and how the company needed

to organize itself. Now Netflix focused on adding more languages

(including for subtitles), optimizing its personalization algorithms for

a global library of content, and expanding its support for a range of

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device, operation, and payment partnerships. Six months after

entering Poland and Turkey in 2016, for example, Netflix added the

local languages to its user interface, subtitles, and dubbing. As with

the markets it had entered earlier, the company launched a service

targeted at early adopters, and then iterated quickly to add features to

attract a wider audience.

Recognizing that in some parts of the world, particularly emerging

and developing economies, mobile is the primary way most people

access the internet, Netflix also began placing a greater emphasis on

improving its mobile experience, including sign-ups, credentials and

authentication, the user interface, and streaming efficiency for

cellular networks. It has been developing relationships with device

makers, mobile and TV operators, and internet service providers as

well.

Netflix has worked with, and responded to, the new markets it’s

entered. The company has partnered with key local companies to

forge win-win relationships. In some cases, it has joined with cell

phone and cable operators to make its content available as part of

their existing video-on-demand offerings. For example, when

Vodafone launched a TV service for its customers in Ireland, it

included a dedicated Netflix button on its remote controls. More

recently, Netflix announced deals with Telefonica in Spain and Latin

America and with KDDI in Japan.

And while Netflix believes that “great storytelling transcends

borders,” in the words of Ted Sarandos, Netflix’s chief content officer,

the company has responded to customer preferences for local

content: Currently it’s producing original content in 17 different

markets. Importantly, Netflix sees such content production as not just

local-for-local, but also local-for-global. In other words, it aims to

have content attract an audience not only locally, where it is

produced, but also more widely. As such, Netflix potentially reaps the

benefits of investing in local content all around the world.

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To address the protracted process of signing content deals with major

studios on a regional or local basis, it has increasingly pursued global

licensing deals so that it can provide content across all of its markets

at once. Netflix has also begun to source regionally produced content,

providing a win-win for these producers, whose local content can

find a global audience.

The company is also applying its deep customer insight to

international markets, using that knowledge to create content that

appeals to a wide range of customer segments. Despite its very rapid

internationalization, Netflix implemented in all markets the same

customer-centric model of operations that had been key to its success

in the United States. It experiments with customer usage data to

determine which offerings work best. Because it operates in so many

countries, Netflix is able to try different approaches in different

markets. As the number of its international subscribers grows, the

performance of its predictive algorithms continues to improve.

Netflix has demonstrated that developing country-specific knowledge

is critical for success in local markets. This knowledge needs to be

both broad and deep, extending across political, institutional,

regulatory, technical, cultural, customer, and competitor domains.

Understanding local cultures ensured that Netflix could be sensitive

to and respond to their differences. This enhanced its credibility and

helped it forge smooth relationships with key stakeholders.

Taken together, the elements of Netflix’s expansion strategy

constitute a new approach that I call exponential globalization. It’s a

carefully orchestrated cycle of expansion, executed at increasing

speed, to an increasing number of countries and customers. The

approach has helped the company expand far more quickly than

competitors. Going forward, Netflix will face increasing competition

not only from other global players such as Amazon Prime but also

from new entrants and regional or local players. In that regard, it will

have to continue to expand its blending of global and regional

content.

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For a variety of market and technological factors, including the

absence of high-speed broadband and a very low level of internet

penetration in many parts of the world, exponential globalization was

infeasible until a few years ago. With the growth of the internet in

general, including on phones, tablets, and smart TVs, Netflix has

demonstrated that this strategy is now a viable option. But it requires

a mastery of local contexts, including the ability to acquire local

knowledge and to demonstrate sensitivity and responsiveness. With

the increasing prevalence of winner-take-all markets, companies

operating in such markets will need to pursue an internationalization

strategy similar to Netflix’s. And when it comes to Netflix’s next stage

of growth, and how it will respond to new challengers, the sequel

appears likely to be as captivating as the original.

Louis Brennan is a professor at the Trinity

Business School at Trinity College Dublin. His

areas of teaching and research interest include

international business and operations strategy.

LB