The battlefields in the streaming wars are shifting rapidly, just as real battle lines are being dug in Eastern Europe.
Russia has met with near-universal condemnation for its unprovoked attack on its neighbor Ukraine, which has launched a war with the country. The conflict has also rattled global markets and made investors nervous about geopolitical instability as the entertainment industry believes more than ever in the value of building platforms with a global reach. The path Netflix has taken as a streamer without borders means that the target market for global streaming giants is a staggering 700 million to 1 billion homes worldwide, according to MoffettNathanson Research estimates.
“We have original content from Turkey. We produce in Russia, in Argentina, in Mexico, in Sweden and in Denmark,” Ted Sarandos, Netflix’s co-CEO and chief content officer, told Wall Street analysts during the company’s fourth-quarter earnings call in late January. “We have original content from all corners of the world, with 20 originals coming from Korea this year.”
The increased demand for local language content from the biggest streamers in the hunt for subscriber growth will be the dominant topic of conversation among content industry insiders, who will gather in Cannes April 4-6 for the annual MIP TV conference and market.
The rush of activity in markets in the UK, Europe, Asia and Latin America has the potential to overwhelm existing manufacturing infrastructures. For leading media and entertainment companies, the focus on reaching subscribers outside of the US couldn’t be sharper.
“Every country is on a different adoption curve,” said Spencer Neumann, Netflix’s chief financial officer. “Entertainment is still pretty much local around the world at its core. So it’s global and it’s local, and that’s what we need to figure out.”
The new competitive frontier is also evolving towards mobile platforms rather than broadband based television. And the future in most markets includes advertising options, according to veteran media analyst Michael Nathanson.
“We see Netflix reaching maturity [in the U.S.] and we’re seeing the other services around the world needing to spend more money on content to expand their offerings,” says Nathanson. “The bets are huge here.”
Disney Plus is juggling more than 300 local-language productions, an important step in boosting subscriber numbers in the region, CEO Bob Chapek told Wall Street in February. The driver of internationality is “the dominance of local content, which we develop to appeal to the unique tastes of each of these international markets,” he said.
Chapek cited the company’s recent expansion in global content development led by Disney veteran Rebecca Campbell, who was named chair of Disney’s international content and operations in January. Chapek made it clear that Disney Plus hopes to uncover a “Squid Game”-style sleeper hit or two from its huge expansion of local-language production.
Disney aims to “maximize the chance that we can get some global hits out of some of this local content,” Chapek said.
But the war shock that erupted in Eastern Europe in late February with Russia’s first incursions into Ukraine is sure to cast a shadow over the French Riviera.
For one thing, most of the world’s major media outlets have taken steps to sanction Russia, shutting down operations and abruptly cutting off business ties with the country. On March 6, Netflix became one of many to cease operations and services in Russia. The country accounts for only about 1 million of Netflix’s 220 million global subscribers.
In an increasingly connected media market, the butterfly effect ensures that geopolitical disruptions in one region are felt in other parts of the platform. The outbreak of violence in Ukraine after two years of work under pandemic conditions came as a shock to the international content community.
And it couldn’t come at a worse time for the media giants, which recently undertook dramatic restructuring to accelerate global direct-to-consumer operations.
Simply put, the US streaming subscriber growth curve is starting to plateau. Hollywood needs to be able to do business unhindered in multiplexes, living rooms, and smartphones around the world for the streaming revolution to work. Disney has turned itself on its head to reallocate resources to support Disney Plus grooming and nutrition. This year, Mouse House will spend a staggering $33 billion on content across all of its platforms (including esports rights for ESPN).
Netflix wins the race when it comes to representing the high end of global subscriber growth rates. From 2016 to 2021, Netflix’s subscriber base grew at a compound annual growth rate of 51% in Asia, 33% in Europe, Middle East, and Africa, and 23% in Latin America. In the USA, the growth rate was 7%.
Following the surge in subscriber earnings in the first year of the COVID pandemic, Netflix’s subscriber base across EMEA (around 73.5 million in Q4 2021) has grown to rival the US and Canada (75.2 million).
Per MoffettNathanson estimates that in the US and Canada, based on the decades-long history of the pay-TV market, the realistic potential for expansion is only about 6.7 million subscribers. In comparison, the potential new customer pool in EMEA is 84.5 million. In Asia there are 80.1 million. For a data-driven company, these stats are like a blinking neon sign pointing to the future.
About two-thirds of Netflix’s total revenue comes from about 20 countries, led by the US (66.8 million), Brazil (18.8 million), the UK (13.2 million), Germany (11.1 million), France ( 8.7 million), Mexico (8.6 million) and Canada (8.4 million).
Netflix’s investment in the exploding world of Korean pop culture paid off with the unexpected global phenomenon “Squid Game,” which broke the award barrier for a non-English language title. South Korea is a relatively small market for streamers, but the influence and appeal of K-pop and Korean drama is undeniable. Netflix has 4.3 million subscribers nationwide, with MoffettNathanson estimating a total potential market of 13.2 million.
Another burning issue for the MIP crowd is the rapid emergence of streaming services and content options for mobile-centric platforms. In many markets in Asia and Africa, consumer news, entertainment, data and connectivity largely revolve around smartphones. Even traditional entertainment giants will have to get used to craft services at lower prices in emerging markets.
“To reach the next level of subscriber penetration [streamers] have to go to less affluent countries with mobile services and advertising,” says Nathanson.
https://variety.com/2022/tv/global/mip-tv-2022-global-streaming-revenue-1235220632/ MipTV 2022: Streaming is growing worldwide more than ever