Netflix has long talked about its plans to launch a global service, and some months ago I wrote a piece on this blog outlining why such a move made absolute sense. But while everyone had been expecting expansion, the OTT service caught us by surprise at the recent CES 2016 expo by announcing its immediate entry into 130 new markets -- giving it a presence in almost every country in the world. Just as Google has become a synonym for online searching, "Netflixing" is now well on the way to becoming the byword for watching TV or film online.
Look at the current figures for Netflix in its existing markets and it’s not hard to see why the service is keen to expand so quickly. In its home territory of the U.S., our data reveals that about half of online adults say they are watching Netflix. The service is posting impressive figures elsewhere, too -- 4 in 10 watch in Mexico, as do close to a third in Canada and Ireland. Matching these numbers in its new markets would generate a huge increase in revenue.
Of course, replicating its current success elsewhere will not be assured for Netflix. Even though it will be dubbing content, local OTT services will provide a significant challenge by offering culturally relevant shows in native languages. Even so, our long-term data shows strong increases in the amount of online TV being watched each day, especially among young demographics. It’s a trend that remains consistent across all of the markets we survey -- and it’s one that Netflix with its globally popular content wants to capitalise on quickly.
Worldwide expansion also allows Netflix to address its well-known VPN problem. To date, our research shows that the service has had a large user base outside of its official markets, with many tech-savvy consumers turning to VPNs to bypass geo-restrictions. Globally, about 25% of adults say they have used a VPN, with 1 in 10 Internet users having done this in order to access better entertainment content not available in their own market. Previously, Netflix has been forced by rights-holders to crack down on VPN users, but our most recent research shows that there are still as many as 23m VPN users watching Netflix each month from countries where (until now) it had yet to officially launch.
By entering these markets, Netflix has rid itself of a significant legal headache and given itself the chance to better understand the composition of its user base -- many of whom will no longer have to disguise their true location. That means it can develop relevant content accordingly, and most crucially of all, monetise these users much more easily and efficiently (our data shows that VPN users are actually much more likely than average to pay for digital content, something that challenges the traditional notion still held in some quarters that they are all freeloaders looking to “raid” material). It might be long overdue, but this is a case of supply finally catching up with demand.
Netflix’s new global model is one that other providers will need to follow. Despite the sometimes complicated negotiations with rights-holders that this can cause, it’s clear that attempting to block access based on physical location is increasingly futile. Not only do European authorities look set to prohibit this in the near future, but in today’s hyper-connected and tech-savvy internet landscape it’s an approach that is completely out-of-sync with how online populations have developed.
Typically, it’s emerging markets across regions like APAC and MENA that have lost out here; big global players like Netflix and Spotify rarely have a presence, and as a result, these countries consistently post the highest figures for VPN usage. But it’s in these same fast-growing nations that Internet populations are booming and where content providers could look to win huge audiences. It’s for this reason that China is a key name to watch. Conspicuously absent from the list of new Netflix territories, the service’s CEO has made it clear that the country is very much on their radar and that “patient” negotiations with Chinese authorities are taking place. Little wonder they are so keen: with by far the biggest Internet population of any country in the world, China has hundreds of millions of potential customers to offer.
It’s already 10% of Chinese Internet users who say that they are using VPNs to access better entertainment material. But clearly, there are many more beyond this who are either unaware of VPNs or uncomfortable at the thought of using them; provide them with easy and official access to the content they want and revenues will follow. What’s more, with Facebook, Twitter, YouTube and the like all remaining restricted in China, cracking this market would allow Netflix to call itself one of the first truly global media providers.