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Netflix’s international expansion is facing a gargantuan obstacle

Now that Netflix is available in almost every country on the planet, except for China, you’d think that the company’s quest for world domination would simply be a matter of advertising and waiting, but it’s not that simple. As an analyst team for Deutsche Bank has pointed out, most of the people living in the 130 countries that Netflix recently launched in don’t have access to the kind of high-speed broadband that’s necessary to stream content from the service, and some of them don’t even have access to Internet at all. It’s like opening a gas station in an area where nobody has enough money to own a car, you’re basically offering a service that nobody has the resources to take advantage of, which renders it useless. 

Netflix has been on a massive international push. As US subscriber growth starts to wane the streaming service has been boosting efforts to rev up growth by jumping into international markets. Most recently, the service went live in 130 more countries in early January, bringing its total to 190 countries. That’s effectively everyone but China. Investors were pleased with this, especially as the company blew past expectations for Q4 international subscriber growth by adding 4.04 million in the final three months of 2015. However, there is one obstacle to Netflix’s global domination in the near future: many people in the world still can’t afford the high-speed broadband one needs to actually use Netflix. As a Deutsche Bank analyst team lead by Stuart Kirk explained: “If the smallest FANG, Netflix, really can operate in every country except China, then perhaps a valuation of 365 times the earnings it announced this week is not so ludicrous. But consider the implied subscriber growth. To fall in line with the market’s 15 times earnings multiple, Netflix requires an extra $2.9bn of income. At its ten-year average margin of six per cent that equates to $50bn of revenue. If average pricing remains at $7.50 per month, and the world’s ex-China population of 5.7bn live four to a house, Netflix must sign up two-fifths of the world’s homes. Rising subscription prices will lower that proportion but the challenge remains titanic given high-speed broadband remains a luxury for many.”

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Written by Louie Baur

Louie Baur is Editor at Long Beach Louie, a Long Beach Restaurant Review site as well as Skateboard Park. Find him on Twitter, Facebook, and Pinterest.

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