Netflix has an overseas problem. The company’s share price plunged 15 percent week after it reported poorer than expected user growth numbers.
The company blamed confusion around a planned price hike and regulatory issues in China, where it has not yet launched, for the excessive churn — it added just 160,000 subs in the U.S. and 1.5 million overseas — but a couple of major barriers mean Netflix isn’t about to suddenly hit the jackpot overseas, particularly in Asia.
That’s principally because its service remains too expensive for many people, and not compelling enough for others.
As anyone who has signed up for the service from outside of the U.S. since its huge global expansion in January will know, Netflix has far less content internationally — particularly outside of major European countries which have some parity with the U.S..
It’s well documented, and it is a process that will take time to change. Netflix is commissioning original content from places like India and playing a waiting game on other licensing, but until then the sparse entertainment options on offer to many will have a tangible impact on growth.
“When you look at [Netflix] content in Asian countries, it is significantly lower,” Aravind Venugopal, vice president at Singapore-based Media Partners Asia, told TechCrunch in an interview. “It just doesn’t have the amount of local content that some of the [streaming and pay TV] competitors have.”
Netflix has publicly stated its intention to develop a homogenous catalog of content, but at the same time acknowledged that it will take time. Not only is there existing content that it can’t license right now until current terms expire, but there are competitors sprouting up and even the potential for competition from production companies which are experimenting with their own offerings.
Disney, for example, partnered with Alibaba to deliver content in China, although ultimately that partnership was closed down reportedly due to violating regulations. But Venugopal believes that the example shows the ambition that the firm, and others like it, harbor for Asia.
“We’re not sure if local content players will license [content] out [to Netflix]. Disney and Fox have their own ideas [and] might not do same licensing deals here in Asia, so Netflix might not have a compatible product in Asia,” he argued.
Even being compatible won’t be enough, since most consumers in countries like India and beyond predominantly consume local programming, even if they do occasionally enjoy Hollywood movies and other international content here and there. In that respect, Netflix is up against any kind of TV, be it online or offline.
Tied into a lack of content comes the fact that Netflix’s service is comparatively pricey in parts of the world. While a starting fee of $8.99 can be argued away as a couple of cups of coffee by some, the price is harder to bear for others with less spending power. That’s particularly true when local rivals, which include Netflix-like Hooq and iFlix in Southeast Asia and more traditional pay TV services, are cheaper or on par and include significantly larger programming catalogues.
“Pricing is still a massive issue. In most markets [in Asia] Netflix ARPU and pricing is higher than pay TV. [So] if you have a pay TV at home and Netflix, you double your bill,” Venugopal said.
“Even if $9-10 is not an issue then bandwidth may be,” he added. “Except for Singapore and Hong Kong, most countries in Asia have a cap on how much you can upload or download [via fixed broadband and wireless broadband], so you can’t really use Netflix on your phone without incurring major charges.”
There could be an opportunity to break that price rigidity soon, and ironically that might come via Netflix’s stamping out of VPN services which for so long allowed users worldwide to access its top shows from any place in the world regardless of local licensing.
If Netflix can guarantee that it has snuffed out VPNs, and it does seem that the company has managed to do so with much efficiency — much to the disappointment of VPN loyalists like yours truly — then it could be in position to implement varied pricing, just like Spotify and others do. That would mean that it could tailor its price to suit local users and help scoop up more subscribers in places where $8.99 is too expensive, albeit at a lower take home per subscription.
“In certain markets, Netflix might need to look at differential pricing. A top tier customer in the Philippines or Indonesia may be different in earnings capacity compared to Singapore. [In some cases,] a $10 product is more than what you’d pay for pay tv service which gives you access to 300 channels,” Venugopal said.
Being able to ensure that users can’t use VPNs is crucial here, Venugopal explained, because otherwise U.S.-based subscribers could sign up via cheaper countries.
One bright spot for Netflix is its efforts to strike partnerships with distribution platforms. In Singapore it working with carrier Singtel and StarHub’s fiber TV service, in the Philippines it has joined forces with Globe Telecom, and there are likely other tie-ups in the pipeline to help its distribution efforts.
Ultimately the Media Partners Asia analyst doesn’t expect Netflix to implement major changes to its global product any time soon, so the U.S. company may continue to deliver modest growth in Asia and emerging markets where it is limiting its potential audience. But, no doubt, Netflix is already eying long-term solutions to fulfill its potential worldwide.
As the company said in a letter to its shareholders: “Disrupting a big market can be bumpy, but the opportunity ahead is as big as ever and we continue to improve every aspect of our business.”