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Battle of Hastings

6 January 2016 By Jennifer Saba

Netflix’s new quest for world domination adds risk as well as promise. The $50 billion video-streaming company is tripling its country count, launching in 130 new markets including India. It has 70 million members now, but growth is slowing. The rollout should allay that worry – but it’s also costly, and it takes the prospect of meaningful profit off the table for a while.

Chief Executive Reed Hastings unveiled Netflix’s global rollout on Wednesday at the Consumer Electronics Show in Las Vegas. China is a notable omission from the Netflix map, but the company said it is working on a path to the Middle Kingdom.

Flooding the zone with so many new countries at once is a characteristic Hastings gesture. It’s also almost necessary, as getting fresh viewers in the United States, which currently accounts for 60 percent of the subscriber base, is increasingly hard to do. Netflix has to stick to the growth script if it’s going to trade at nearly 400 times its sliver of estimated profit for 2016.

The international effort will be pricey, though. Netflix plans to roughly break even through 2016 before profit turns up again. But luring all those imperfectly understood customers – and buying or producing content they want – could call for a lot of investment.

The company is ramping up its original content at the same time, as Amazon, Hulu, HBO and others compete in Netflix’s existing markets. It plans to shell out $5 billion this year including on some 85 new TV series, kids’ programs, movies and documentaries. Netflix was also on the hook for some $10.4 billion in streaming-content obligations as of Sept. 30, more than half of which wasn’t reflected on the company’s balance sheet.

Backing projects like the sequel to “Crouching Tiger, Hidden Dragon” serves two purposes. First, it ensures exclusivity, which helps attract subscribers eager to binge on a series that’s generating buzz. Second, it should make it easier for shows to cross international borders. The rights to other producers’ content often have to be negotiated on a country-by-country basis.

Investors gave Hastings’ volatile shares a 9 percent boost on Wednesday. Long-term, though, his strategy relies on the ubiquity that in America gave the phrase “Netflix and chill” a new, sly meaning translating across the globe.

 

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