The battlegrounds in the streaming wars are shifting fast, just as real-life battle lines are being dug out in Eastern Europe.
Russia has drawn near-universal condemnation because of its unprovoked attack on its neighbor Ukraine, launching a war with the country. The conflict has also rattled world markets and made investors nervous about geopolitical instability as the entertainment industry is banking more than ever before on the value of building platforms with global reach. The trail blazed by Netflix as a streamer without borders means that the target market for global streaming giants is a staggering 700 million to 1 billion households worldwide, as estimated by MoffettNathanson Research.
“We’ve got original content coming out from Turkey. We have production in Russia, from Argentina, from Mexico, from Sweden, from Denmark,” Ted Sarandos, Netflix’s co-CEO and chief content officer, told Wall Street analysts in late January during the company’s fourth-quarter earnings call. “We’ve got original content from all corners of the world, with 20 originals coming out of Korea this year.”
The heightened demand for local-language content by the largest streamers in the hunt for bottom-line subscriber growth will be the dominant topic of conversation among content industry insiders set to gather in Cannes April 4-6 for the annual MIP TV conference and market.
The rush of activity in markets across the U.K., Europe, Asia and Latin America has the potential to super-charge existing production infrastructures. For media and entertainment leaders, the focus on reaching subscribers outside the U.S. could not be sharper.
“Every country is on a different adoption curve,” says Spencer Neumann, chief financial officer of Netflix. “Entertainment is still fundamentally pretty local around the world. So it’s global and local, and we need to figure that out.”
The new frontier of competition is also shaping up to lean toward mobile platforms rather than broadband-based viewing. And the future in most markets includes advertising options, according to veteran media analyst Michael Nathanson.
“We’re seeing Netflix reaching maturity [in the U.S.] and we’re seeing the other services have to spend more money on content around the world to broaden their offering,” Nathanson says. “The bets here are huge.”
Disney Plus is juggling more than 300 local-language productions, a vital step to growing subscribers in the region, as CEO Bob Chapek told Wall Street in February. The driver of international is “the predominance of local content that we are developing in order to appeal to the unique taste of each of those international markets,” he said.
Chapek noted the company’s recent expansion of its global content development operation under the direction of Disney veteran Rebecca Campbell, who was named chairman of Disney’s international content and operations in January. Chapek made clear that Disney Plus is hoping to uncover a “Squid Game”-style sleeper hit or two out of its vast expansion of local-language production.
Disney aims to “maximize the chance that we get some global hits out of some of that local content,” Chapek said.
But the shock of war erupting in Eastern Europe in late February with Russia’s first incursions into Ukraine is sure to cast a shadow on the Cote d’Azur.
For one, most of the world’s major media companies have taken steps to sanction Russia by suspending operations and abruptly cutting business ties with the nation. On March 6, Netflix became one of many to suspend activity and service in Russia. The country accounts for only about 1 million of Netflix’s 220 million global subscribers.
In an increasingly interconnected media marketplace, the butterfly effect ensures that geopolitical disruption in one region is felt in other parts of the platform. The outbreak of violence in Ukraine, following two years of working through pandemic conditions, has been a jolt for the international content community.
And it couldn’t come at a more inopportune time for the media giants that have recently undertaken dramatic reorganizations to accelerate global direct-to-consumer operations.
Simply put, the streaming subscriber growth curve in the U.S. is starting to plateau. Hollywood needs to be able to do business unfettered in multiplexes, living rooms and smartphones around the world to make the streaming revolution work. Disney has turned itself inside out to reallocate resources to support the care and feeding of Disney Plus. This year, the Mouse House will spend a stunning $33 billion on content across all of its platforms (including sports rights for ESPN).
Netflix paces the race in representing the high end of global subscriber growth rates. From 2016 through 2021, Netflix’s subscriber base blossomed at a compound annual growth rate of 51% in Asia, 33% in Europe, the Middle East and Africa and 23% in Latin America. In the U.S., the growth rate was 7%.
After the surge of subscriber gains in year one of the COVID pandemic, Netflix’s subscriber base across EMEA (about 73.5 million as of Q4 2021) has grown to rival the U.S. and Canada (75.2 million).
Per MoffettNathanson estimates, in the U.S. and Canada, based on the decades of pay TV market history, the realistic expansion potential is only about 6.7 million subs. By comparison, the pool of potential new customers in EMEA territories is 84.5 million. In Asia, it’s 80.1 million. For a data-driven company, these stats are like a blinking neon sign pointing to the future.
About two-thirds of Netflix’s total revenue comes from about 20 countries, led by the U.S. (66.8 million), Brazil (18.8 million), U.K. (13.2) million), Germany (11.1 million), France (8.7 million), Mexico (8.6 million) and Canada (8.4 million).
Netflix’s investment in the exploding world of Korean pop culture paid off with the unexpected global phenomenon of “Squid Game,” which has broken through the awards barrier for a non-English language title. South Korea is a relatively small market for the streamer, but the influence and appeal of K-pop and Korean dramas is undeniable. Netflix has 4.3 million subscribers in the country, with MoffettNathanson estimating a total potential market of 13.2 million.
Another burning issue for the MIP crowd is the fast emergence of streaming services and content options for mobile-focused platforms. In many markets in Asia and Africa, news, entertainment, data and connectivity for consumers revolves largely around the smart phone. Traditional entertainment giants will also have to get accustomed to crafting services at lower price points in emerging markets.
“To get to the next level of subscriber penetration [streamers] have to go into less-affluent countries with mobile services and advertising,” Nathanson says.