Have you seen how quickly Netflix (NASDAQ: NFLX ) is refocusing on overseas expansion? Let's follow the paper trail:
Content costs may be rising overall, but are actually falling in the domestic market. Instead, the international division has nearly doubled its content budget over the four quarters where Netflix has provided that information.
So Viacom (NASDAQ: VIA ) walked away with SpongeBob and Dora, taking its prized content to the highest bidder. But the original deal was signed in 2009, before Netflix announced its first international market, and almost certainly didn't include global streaming rights. The money saved is going into overseas licenses instead.
For example, Netflix just signed an agreement with AMC Networks (NASDAQ: AMCX ) to stream the final half-season of Breaking Bad just a couple of days after each episode airs on American television. The instant access is only available to Netflix customers in the U.K. and Ireland and probably cost Netflix a pretty penny.
In Latin America, 21st Century Fox (NASDAQ: FOX ) holds the distributions rights to the content made by DreamWorks Animation (NASDAQ: DWA ) . That kind of dual rights structure typically makes it difficult and expensive to join the party.
But Netflix has secured the exclusive rights to upcoming and back-catalog DreamWorks movies south of the border, right alongside the less complicated domestic deals. That's another large step abroad, and it shows in the international streaming costs.
Expect that trend to continue and even accelerate. Why? Because of this explosive payoff:
Netflix has grown its total subscriber count by 36% over the last year and 46% in two years, including the backlash from the Qwikster blunder. Domestic growth was 25% and 21%, respectively, reflecting the fallout of that error in the summer of 2011.
But international subscribers more than doubled over the last year and grew sevenfold in two years.
The international contribution was laughable at first, much like the streaming service in the early days. But the division has grown from 0% of Netflix's customers to 20.5% in less than three years. It won't be long before the American market becomes a minority. The biggest growth market in front of Netflix is the whole world.