Netflix Inc. is experiencing what some might call growing pains and what others would see as foundations for future growth. Full-year profits for 2015 are expected to be less than last year for the streaming television service and television production company – but it’s for a very important reason. Netflix is setting its sights on global expansion in the coming years, and those efforts are going to limit earning potential (at least for a while).
What do the numbers say for Netflix? Results from the latest quarter showed that domestic subscriptions are shrinking. In a statement announcing the quarterly results, the company stated that it had exceeded its previous forecasts for total paid streaming subscribers. In the quarter ending December 31, the number of streaming subscribers was up to 54.5 million. It was up 31.5% from the same quarter in 2013. Revenue also increased in the same period of time – up 35.7% to $1.3 billion. However, all this growth comes at a price. Analysts began to wonder at this time last year whether Netflix could sustain the growth necessary to keep the company afloat, as well as fuel the burgeoning original series department.
Netflix itself has predicted that its growth would slow throughout the next year. “[It’s a] natural progression in our large U.S. market as we grow,” stated CEO Reed Hastings in the statement. He also noted that although the growth slowdown was initially attributed to the price increase in 2013, that the decline is a result of Internet TV reaching a saturation point across the nation.
Looking at growth overseas. That’s why Netflix is now turning its attention overseas to continue their growth pattern. The company announced plans to accelerate their global expansion from 50 countries to 200 by the end of 2016. By replicating its subscription-based, advertising-free model for the streaming service, it’ll be able to break into new markets and save the international streaming business, which has up until now been operating at a loss. The projected goal is to make the division profitable by 2017.
“Once we complete the expansion, we’re going to have a very unique and compelling proposition to producers, which is we can get your content seen and loved around the world,” said Hastings. Last fall, the company began offering service in six European countries. It will add Australia and New Zealand service in the first quarter of 2015, and is also exploring plans to offer service to China. Chinese expansion will be explored very cautiously, and will likely require Netflix to obtain special licenses from the government.
According to Hastings, the global expansion will put the company on track to reach $10 billion in revenue. Not only is this key to the health of the company, but it will provide revenue that can be used to continue development of Netflix original series.
Original series are driving growth, profits. Original series such as “House of Cards,” “Orange is the New Black” and “Marco Polo” all perform well and cost less for Netflix to offer than content from other major studios. Although Netflix does not release viewership statistics, it is pouring resources into new original productions for the coming year – at a rate triple that of previous years. The company plans to produce 320 hours of original programming.
Included in these hours are about 65 new and returning series, as well as original movies from Jay and Mark Duplass. The Duplass brothers have a long track record of success as indie actors, directors and producers – and have agreed to create four movies for the streaming service that will appear shortly after a brief theatrical release. In addition, Netflix recently signed a four-movie exclusive deal with comedy powerhouse Adam Sandler, and will be able to debut the “Crouching Tiger, Hidden Dragon” sequel the same time as theaters in August 2015.
What’s ahead for Netflix? With major content creation plans on the horizon, Netflix is putting its faith in global expansion. For viewers, there’s a lot to be seen (and new languages for it to be seen in) when it comes to Netflix.