Streaming services work on small margins, targeting massive audiences to return a profit. For Netflix, going international has finally returned a bottom-line success.
Spotify and Netflix: Two household names that are nearing verb status for streaming music and TV, respectively.
However, despite the encroachment into standard English, the duo also represent some the loss-making realities of this decade’s approach to media consumption.
In short, it’s very hard to make a profit through streaming.
Video trumps audio
That may be changing, though. As Spotify’s growth has continued unabated, despite a plethora of far more financially powerful rivals, profit is now a likelihood.
At Netflix, thanks to its own targeted growth, this has already proved true in the short term, and this could be extended. Yesterday, the company reported significant increases in profit in comparison to last year.
That’s because its increasing investment into international markets, outside of its US home, are finally paying off.
Data provided by Statista shows that Q1 of 2017 was the first time its international markets yielded a profit.
That $43m in the black is a far cry from its previous quarterly losses of $67m, $69m, $69m, $104m, $109m, $68m, $92m and $65m, dating back to the start of 2015.
Netflix plans to continue investing in international growth and expects to return to a small deficit in the ongoing quarter. This investment is twofold, though only one aspect of it will truly see the figures stay black.
Netflix’s original content will play a huge role in any future profit at the company. That’s because licensing deals have to be negotiated individually for each market – a parochial nightmare for an international brand. Investing in original content means a global roll-out, all at once.
“It’s amazing to think that we launched original programming on Netflix in 2013 and, in just four years, our original series accounted for five of the top 10 most searched TV shows of 2016 globally, including Stranger Things at number one, according to Google trends,” CEO Reed Hastings said in a letter to shareholders earlier this year.
“We are incredibly excited about all the projects we have underway for our global members, no matter their age, taste or cultural background. In 2017, we plan to invest over $6bn on content on a P&L basis (up from $5bn in 2016),” he said.
Meanwhile, the company’s audience – historically a US base, with an international aside – is now a cross-border global crowd.
Netflix subscribers will soon pass 100m, perhaps reaching that milestone by the end of this week, but it’s where these new additions are that is the most interesting aspect.
Now available in more than 100 countries, Netflix’s subscriber base has become increasingly international over the years. The number of international subscribers will likely surpass domestic subscribers sometime this year.