Low foreign subscribers stun Netflix investors

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Low foreign subscribers stun Netflix investors

Netflix, with 34.5 million subscribers outside the United States, on Monday stunned investors by forecasting a second-quarter international subscriber growth that was far below analysts’ estimates of 3.45 million.

The company expects to add two million new accounts outside the United States, the fewest since mid-2014, when it was available in less than half as many countries.

The disappointing outlook brought home to analysts and investors that Netflix won’t quickly replicate its U.S. success on the world stage. In many newer markets, few people speak English, and credit cards aren’t common.

Netflix has reported bigger and bigger numbers outside the United States by expanding geographically every few months. Now, after launching in 130 countries in January, it has mostly run out of new places and must work to become more popular where it already operates.

“Netflix will now need to improve the product offering and perhaps localize in some areas to drive acceleration,” Benjamin Swinburne, a Morgan Stanley analyst, said in a note. He expects those improvements to begin in the second half of the year.

While original programs including “House of Cards” and “Daredevil” have catalyzed growth thus far, Netflix has begun producing shows in markets like Spain, Brazil, Japan and France to build its global audience.

The slate of programs in native tongues includes the French political drama “Marseille,” which debuts May 5, and the Japanese series “Hibana,” coming in June.

The company picks projects it thinks will succeed beyond a single market - “Marseille” is meant to appeal not just to people in France but to francophones around the world, Chief Financial Officer David Wells said on a conference call Monday.

About two million people in the United States watch French-language programming, Chief Content Officer Ted Sarandos added.

Still, those local programming efforts and improvements in payment processing may take a couple years to show results, Chief Executive Officer Reed Hastings said on the same call.

Netflix strives to offer the same mix of licensed and original programs around the world, so viewers from Hong Kong to Bogota can access the same library.

Currently, some original Netflix shows, like “House of Cards” and “Orange Is the New Black,” which have helped attract almost 47 million domestic customers, aren’t available to subscribers outside the United States. The producers licensed those programs to foreign TV networks before Netflix got ambitious about expanding to more countries.

The company is making progress by renegotiating rights in some instances or obtaining global rights from the outset.

In Singapore, Netflix couldn’t initially offer “Breaking Bad” or “Sense8.” Both series are now available in their entirety. And Netflix originals like “Unbreakable Kimmy Schmidt,” “Love,” “Jessica Jones” and “Daredevil” came out at the same time as in the United States in their entirety.

One growing challenge for Netflix is competition. As the streaming-video market has matured, it’s gotten harder to catch incumbents by surprise.

In Europe, for example, Sky Plc has been spending more on original programs and has its own streaming service, Now TV. Vivendi SA formed an alliance with Silvio Berlusconi’s Mediaset SpA to boost its presence in Italy and Spain. Bloomberg

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