Netflix (NFLX -0.51%) added 5.5 million international subscribers last quarter, compared to just 2 million in the U.S. What, exactly, is Netflix doing right overseas?
The answer came at the beginning of the company's latest earnings call, when Chief Content Officer Ted Sarandos noted that Netflix now has original local-language content from 17 different countries.
Netflix has raised the bar for international content. English-language content that's dubbed to make it work for other countries is no longer good enough. And as an added bonus, the company has found that if an overseas series is good enough, it can actually be dubbed for the U.S. and other countries.
Netflix now has original local-language content in 17 different countries. Image source: Netflix.
Letting others tell their stories
Netflix has avoided shortcuts in providing content for its international subscribers, and that's made all the difference. International projects from Netflix are high-quality original series told in the local language with local producers. Some of those hit international series include German series Dark, Brazilian series 3%, Spanish series Las Chicas del Cable, and Danish series The Rain.
Netflix plans to release 700 original titles this year, and 30 of those will be international projects. Altogether, the company expects its 2018 content spend to be between $7.5 billion and $8 billion.
Sarandos said the company is particularly focused on funding titles that inspire fans who can't seem to live without their favorite shows. He said it hasn't been particularly hard to find these types of shows abroad, because there are great storytellers everywhere who just haven't been given a chance to make content on a big scale.
Netflix's international hits become global hits
In a boon to Netflix and its investors, the company has found that international series can become worldwide hits.
To make this strategy work, Netflix has been investing heavily in technology to continually improve its ability to subtitle and dub quickly and accurately. Netflix is particularly proud of the dubbing done on the Danish series The Rain (which premiered in early May), said CEO Reed Hastings on the earnings call. "... investors should check out The Rain ... and just to look at the quality of what the dubbing could be, because we're really making a big investment there that we think will pay off in approachability of all these titles from the world to the world," Hastings said. IMDB describes The Rain as being about: "After a brutal virus wipes out most of the population, two young siblings embark on a perilous search for safety."
This strategy has helped ease fears about international growth needing to come at the expense of shrinking margin. While making localized content and then taking it to other markets is a big investment, it's still "a fraction of the cost" of regular TV production in the U.S. and other developed markets, Netflix CFO David Wells said. That's why the company believes it can keep reporting impressive international subscriber additions without sacrificing margin.
Netflix is up to 68.3 million international subscribers and 54.8 million U.S. subscribers. Netflix still believes it can hit 90 million subscribers in the U.S. but hasn't given a long-term forecast in regards to overseas growth. But recent estimates have Netflix reporting 201 million total subscribers by 2023.
Netflix had a light-bulb moment in the U.S. when it realized the cost of producing high-quality original series was well worth the positive effect it had on subscriber retention and subscriber additions. Now it's taken that strategy abroad and learned that even if it executes it on a very small, localized scale, it can use technology to bring content to its broader audience in a cost-effective way. No matter where subscribers are from, in the end, they just want access to high-quality content.
