Netflix recently announced that the company is doubling down on the emerging markets in Asia and Latin America to drive the next stage of growth for the streaming bellwether. More Interestingly, Tony Zameczkowski, VP of business development for the Asia Pacific, made an interesting comment. He noted, “There are similarities between emerging Asia and other emerging markets like Africa and Latin America. Learnings here can be easily replicated or leveraged by those regions”.
Netflix’s history in Latin America has been relatively successful as the company brings in nearly $1 billion per quarter from that particular region despite its average revenues per user being nearly half what they collect from top-tier geographies such as the US and Canada. The company has already been leveraging the talent of local producers in Asia lately, and some of its bets have turned into home runs such as “Squid Games,” “The White Tiger,” and “Crash Landing on You.” The hit series Squid Game holds the record for the most popular Netflix series of all time, racking up 1.65 billion viewing hours in its first 28 days. Beyond just the second season of “Squid Games,” Netflix is also investing in a reality show based on the hit series.
In a recent interview, Mr. Zameczkowski spoke of the need to solve for payments in underbanked markets where credit card penetration continues to be in the single digits. He mentioned offering alternative payment methods like e-wallets and direct carrier billing as crucial to user growth in Asia and Latin America. Netflix admitted to having lost over a million more subscribers, with consumers experiencing “subscription fatigue” with the number of subscription video-on-demand services now available. Netflix has also announced definitive plans to introduce a cheaper ad-supported tier by the end of this year. Moving to a new ad-supported tier will allow Netflix to compete directly with other platforms that already feature that model, like Hulu, HBO Max, Peacock, and Disney Plus. According to a report in the Wall Street Journal, Google and NBCUniversal are likely frontrunners as partners to help Netlfix create its advertising tier. However, analysts at Wells Fargo have expressed reservations regarding the potential of ad-supported tiers in driving user growth as they expect cannibalization from higher ad-free tiers.
“What I want our product to be is better than TV. Audience matching is what we’ve been doing from the beginning, and I think we could do really great in that,” Ted Sarandos, Netflix’s co-CEO, and the chief content officer said during an interview at the recently concluded Cannes Lions. “I think creative is something we’ve been doing for ten years and have been very competitive there, so bringing those worlds together and making it a great experience for both the audience and the advertisers. We’ll start simple, and iterate fast.”
Much of the new user growth in the last twelve to eighteen months for Netflix and Disney+ has come from emerging markets in Asia and Latin America. However, the subscription revenues are less than a third of what the streaming companies charge users in North America and Western Europe. Yet most streaming services are doubling down on developing regional content to cater to consumers in these regions to drive user acquisition, with growth slowing down in developed markets. Netflix is on course to spend $17 billion on content development this year. Amazon Prime recently announced a slew of new releases, especially for the South Asian region. As part of a recently announced partnership with AMC, Amazon Prime Video will provide access to advertisement-free subscription service AMC+ and AMC’s streaming service Acorn TV on Prime Video Channels in India on a subscription basis.
While HBO Max[i], has had success with original content, most services may not have as many recent and popular series as Netflix. HBO Max’s top series of 2022 so far has been the original series Euphoria. The Zendaya-led series has become the second-most-watched show for HBO, behind Game of Thrones. Its second season premiered in January and accumulated an average of 16.3 million viewing hours an episode the month it was released and about 130 million hours for the whole season.
User growth will taper off for streaming services unless they can address both content and payment preferences of consumers in Asia and Latin America. Beyond sustained investments in original content, partnering with mobile carriers to offer direct carrier billing can enable a frictionless sign-up experience for consumers.