Netflix to Step Up International Rollout

LOS GATOS: Currently present in about 50 countries—with a global membership base that hit 57.4 million at the end of 2014—Netflix is looking to complete its rollout to 200 markets in the next two years.

The platform added 13 million customers in 2014. At the end of Q4, there were 39.1 million U.S. members and 18.3 million international members. It expects to hit 61.4 million global customers by the end of Q1 2015.

Revenues in Q4 rose to $1.3 billion, with $917 million from U.S. streaming and $388 million from international streaming. Net income for the quarter was $83 million.

"It is increasingly clear that virtually all entertainment video will be Internet video in the future," CEO Reed Hastings and CFO David Wells said in a letter to shareholders. "We believe there is big growth ahead in the U.S. market for Netflix, even if we may not get there in a straight line of 6 million annual net adds. We’ll continue to improve our content, our marketing and our service, to eventually achieve 'must have' status in most households."

Hastings continued, "Our international segment is growing very nicely with net adds of 2.43 million members in Q4, compared to 1.74 million a year ago. Our initial set of markets (Canada, Latin America, the U.K., Ireland, the Nordic countries and the Netherlands) achieved contribution profitability in Q3 and continue to grow. Our launch in Q3 in France, Germany, Austria, Switzerland, Belgium and Luxembourg went well and our new original content is particularly popular. With all of the additional new original content set to premiere in 2015, it will be a big year for us in France, Germany and our other recently launched markets. We’ve successfully built big demand for Netflix from Argentina to Finland, due in part to the overall shift from linear to Internet TV."

The platform is expanding to Australia and New Zealand later this quarter. "Additional major countries" will come on board later in the year, Hastings said. "Our international expansion strategy over the last few years has been to expand as fast as we can while staying profitable on a global basis. Progress has been so strong that we now believe we can complete our global expansion over the next two years, while staying profitable, which is earlier than we expected. We then intend to generate material global profits from 2017 onwards.

"We already offer Netflix in about 50 countries and have learned a great deal about the content people prefer, the marketing they respond to and how to best organize ourselves for steady improvement. Acceleration to 200 countries is largely made possible by the tremendous growth of the Internet in general, including on phones, tablets and smart TVs. We intend to stick to our core ad-free subscription model. As with our initial round of international expansion, we’ll get some things wrong and do our best to fix them quickly."

Hastings specifically mentioned China, noting, "we are still exploring options—all of them modest. We’ll learn a great deal if we can successfully operate a small service in China centered on our original and other globally-licensed content. That is our preference, for the next few years, if we are able to acquire the necessary permissions."

(China is AsiaPac's biggest OTT market, accounting for 85 percent of the region's 594 million active OTT customers, according to Media Partners Asia.)

Hastings went on to say, "It is advantageous for Netflix to become global in many ways. The big one is absolute size (faster to $10B in revenue) because that revenue allows us to develop and license more content for our members and improve our service. A second is being able to source great stories from around the world and deliver them to the world. A third is the efficiency and influence of being a unique global licensor that provides worldwide distribution. With the growth of the Internet over the next 20 years, there will be some amazing entertainment services available globally. We intend to be one of the leaders."

On the content front, Hastings noted that the platform will launch 320 hours of original series this year, triple last year's number. "We will continue to grow the percentage of our content spending dedicated to originals for the next several years," he said.