The European Parliament may have given Netflix (NASDAQ:NFLX) a blessing in disguise when it passed a law requiring 30% of content on streaming video services to come from European countries. While Netflix originally focused on local content to attract local viewers, it's found local content can have global appeal. Americans are consuming more foreign content than ever, which allows streaming services with global scale to make the most of their content spending while local competitors are left with less differentiated content.

Silhouette of a man in front of dozens of TV screens.

Image source: Getty Images.

Think globally, act locally

There are really only a couple of streaming video services with global scale right now. Netflix has over 200 million subscribers worldwide, and Disney (NYSE:DIS) is quickly catching up with Disney+, which ended 2020 with 94.9 million total subscribers.

Other streaming video competitors have expressed global ambitions, too. AT&T's WarnerMedia expects to take HBO Max to international markets this year, starting with Latin America and followed by Europe. Discovery officially launched Discovery+ at the start of the year with a running start in Europe, where it rebranded its DPlay app, and India, where it had been testing the service since March 2020. But neither is expected to have the same global subscriber base as Disney or Netflix.

There are dozens of other streaming competitors focused only on the United States or a local market. Even Apple's Apple TV+ is focused on American content despite its global availability. Apple TV+ hasn't caught on with viewers, and Apple's extended its free trial several times for early adopters. 

Making the most of local content

In its fourth-quarter letter to shareholders, management highlighted several local language originals with strong viewership.

Title

Country

Viewership
(28 days post release)

Lupin

France

70 million

Barbarians

Germany

37 million

Sweet Home

Korea

22 million

Alice in Borderland

Japan

18 million

Table source: Author. Data source: Netflix fourth-quarter letter to shareholders.

Netflix has had lots of other local programming go global in the past as well, such as Spain's La Casa de Papel (Money Heist), Indian Matchmaking (produced in India, the U.K., and the U.S.), and Dark from Germany.

Indeed, Netflix has been instrumental in increasing the popularity of foreign content in America. While the U.S. has largely been an exporter of entertainment, it hasn't historically had much appetite for series and films from other countries. That's changing -- not just on Netflix, either. See last year's Best Picture winner, Parasite, for example, which grossed over $50 million at the U.S. box office.

What's more, streaming services with a broad library of international content are differentiated from competitors that only provide locally produced content. There are a lot more services in the U.S. offering American series and films than there are Netflixes offering everything from K-drama to German comedies. (Yes, they exist!)

Disney just unveiled its first slate of European originals for Disney+ and its soon-to-launch Star service. In Europe, Disney will add Star as a new tile in Disney+. Just two of the 10 titles will be released on the main Disney+ service, while the other eight are designated for Star. The media company could release those titles on Hulu in the United States if it sees the same broad appeal as Netflix for its local language titles.

European, Asian, and Latin American productions are typically less expensive than American productions. The BBC, for example, says its top price per episode of a premium drama is 1 million pounds. For comparison, Disney reportedly spends between $12.5 million and $25 million per episode of its Star Wars and Marvel series on Disney+. If lower-priced European productions can have the same local appeal as big-budget Hollywood hits while still drawing a sizable audience in the United States, it's a much more cost-effective way to fill out the library on a streaming service. 

Streaming services with a global reach have the potential to outperform local providers. They can spend more on local content to draw the local audience while still appealing to the audience outside the target geography or demographic. That means they can keep prices relatively low, as Disney and Netflix do in countries like India, and still spend big on content because it performs well outside its home country. Ultimately, that leads to strong subscriber growth, increased pricing power, and a high return on investment for global content spend.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.