Is An “Offline Mode” Crucial For Netflix’s Success In International Markets?
As the domestic msrket saturates and becomes intensely competitive, Netflix (NASDAQ:NFLX) is looking for growth in the international market. We expect its international streaming revenues to surpass domestic revenues in the next few years, as international subscribers grow at a rapid pace. However international markets come with their own challenges and Netflix needs to innovate to grow users in these markets. Low broadband speed and limited access to internet is one of the major challenges faced by Netflix in some of these markets. With players such as Facebook, YouTube and even LinkedIn testing “offline” modes for these regions, it now appears that Netflix will also finally provide the offline feature in emerging markets. In a recent interview, Netflix’s Chief Content Officer Ted Sarandos stated that the offline feature could appeal to areas where high internet speeds are not present. While Netflix’s growth potential in emerging economies is huge, is strategy whether to adapt to local conditions (through local content and download option) or appeal only to the elite class in these regions (foreign shows, no download option) will determine its pace of international growth.
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As per our estimates, Netflix’s international subscribers will increase from around 46 million in 2016 to nearly 83 million by the end of our forecast period.
Apart from Europe and Latin America, Asia Pacific will be a key driver of this growth. Netflix is still struggling to identify a strategy to enter into China and might look for a strategic partner in the region. However, the company has witnessed strong traction in India. Several Asian economies including India, which hold strong potential for the Netflix, present challenges in terms of broadband speed and patchy internet connections. A download feature can increase adaption of Netflix in these regions, especially when competitor’s such as YouTube are launching offline viewing modes in India. If Netflix eventually wants to target Tier 2 and Tier 3 cities in the region, it might have to look at regional content and offline viewing options. Further, several emerging economies, such as India are “Mobile first” economies where most of the video consumption happens on smartphones. High data charges on mobile phones limit video consumption and consumers prefer to download videos when a wifi connection is available and watch them later on the move. This behaviour leads to higher usage of apps or sites which provide a video download option. Hence, an offline feature has the potential to increase the number of Netflix users in these regions.
Netflix has only expressed the intention to explore the download option and not provided details on when, where and how this feature will be launched. Whether it will be launched in the U.S. after the feature is introduced in the international markets is yet to be seen. Netflix’s competitor in the U.S. Amazon Prime already provides the download feature, so it is likely that the company might eventually bring this option to the U.S. as well. However, to boost growth in international markets, an offline feature can prove to be a critical factor.
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