Shares of Netflix (Nasdaq: NFLX) skyrocketed this week when the video maven announced an ambitious international expansion plan. By the end of 2011, Netflix plans to sell digital streaming plans in 43 new nations across the Americas and the Caribbean.
The expansion itself surprised no one, but the grand scale of the rollout -- or, perhaps, its pace -- did raise some eyebrows.
The fast and the furious
Netflix had already signaled plans to go nearly worldwide with its digital services. Recent job postings looking for customer support personnel fluent in Brazilian Portuguese and Latin American Spanish tipped off the pan-American move, but also gave us clues to Netflix's next phase.
The next two large expansion pushes should aim at Western Europe and Southeast Asia. In particular, Netflix is exploring the British market, where Amazon.com (Nasdaq: AMZN) has already made headway by acquiring a local digital-video provider.
After establishing that foothold in the Old World, I'd expect a quick rollout from Spain and Italy to Germany and the Netherlands, opening up a market of nearly 400 million consumers with generally good access to broadband Internet connections. That would also pave the way for further expansion in Eastern Europe, though market conditions there aren't quite as ripe.
Japan and South Korea are also prime targets, with hyperconnected infrastructures and net-friendly lifestyles running rampant. Chalk up another 200 million potential customers from those countries.
Pace yourself
I'd expect Netflix to announce a British adventure in 2012, perhaps as part of a wider European move akin to the South American mass-market launch. 2013 should see the first Asian announcements, and I expect we'll see scattered launches in easily-adapted markets like Australia and South Africa along the way.
Meanwhile, Amazon will continue its international exploits, while Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) kick up their own new-media pushes. Just as Apple paved the way for competing music services with the global success of iTunes, Netflix will turn the movie market on its head wherever it goes.
What's in it for Netflix?
As for Netflix itself, the rest of the world provides avenues for continued growth after the service saturated North America. Netflix already has more subscribers than the largest U.S. cable company, Comcast, so the growth curve back home might start to flatten out in a couple of years. The international model should also change how Netflix signs license deals in many ways:
- Talking to intermediate content wranglers such as Liberty Starz (Nasdaq: LSTZA) makes less sense than connecting directly to studios. Would you rather sign five separate contracts for global rights with the major studios, or possibly hundreds of second-hand deals specifically tailored to dozens of geographies?
- The new worldwide contracts will take longer to hammer out, and the wider distribution rights will make them more expensive as well. When the big boys get around to signing on the dotted line, perhaps led by a previously disgruntled Sony or an openly digital-friendly Walt Disney (NYSE: DIS), the long-term numbers will look mind-bogglingly enormous. Before panic-selling your shares at that point, remind yourself that you gotta spend money to make money. These deals will fuel Netflix's drive to become an international superstar with staying power, rather than just another local hero.
- The terms of these studio deals will set the pace of Netflix expansion, spelled out in detail many years in advance. Canada was a useful experiment to gauge the appetite for low-cost video subscriptions elsewhere, and the Latin American explosion might help out a bit as well, but the big deals will be modeled on lessons learned there, without much wiggle room for adjustments.
- The act of negotiating these deals also provides a blueprint for others to follow. The trailblazer wading through the snow always has to work harder than those trailing in his footsteps, especially in the icebound traditions of the movie industry.
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