Netflix plans to expand in future albeit piling debts and tight competition, relying on its business model strategies
Netflix Inc. (NASDAQ:NFLX) has announced its plans for expansion into the Oceania region by targeting the Australian and New Zealand market. It is also contemplating on launching its services in the Russian market sometime this year, but with the tensions ongoing over Ukraine, which leads to the government clamping down on Foreign Service providers including NBC Universal, it remains to be seen how the internet television company will likely handle the market pressure.
The company launched its first non-U.S. market expansion by adding the streaming services in Canada in 2010, before covering 50 countries spanning from the Americas to Western Europe. The interesting fact is that Netflix suffers a loss in its initial days of operations before turning into profit. It achieved the breakeven level of customers needed to subscribe its services, which took an average of two years. Today, it claims that most of its launched operations have now become profitable. Based on this statement, it can be safely concluded that the same will be the case when it enters these two Australian and Asian markets.
Netflix plans to cover 150 countries by the end of 2016. The expansion is a painstaking process for the company that is currently saddled with large debts. The company is raising further liabilities, but it is not targeted for expansion. Rather, these borrowed funds are aimed at producing new and original content. Netflix itself is not a content producing company, but rather a distributor. It has to rely on other companies to script, shoot, and produce, and then leave the distribution to it.
The debt raised for the production of the original content from Netflix will probably complicate, if not trouble Netflix Inc. There is tough price war prevailing among rivals, such as the local New Zealand video streaming service, Lightbox, reduced its subscription fees from the current $15 to $12.99, in addition to adding new shows like Taika Waititi comedy super city and WWII spy thriller X company.
Netflix’s has a new business model. It emphasizes on the publishing of each new season as a batch comprising of entire set of episodes. This enables the viewers to watch these episodes without any delays between them. Some fans may like the idea, but critics question the sustainability of the model in terms of no break in between the episodes shown weekly, and whether it will retain the contained audience interest. Whether the company has struck its fortune or plans to squander the opportunity is yet remains to be seen.
Netflix’s plans for this year is to launch 12 entirely original series, followed by 18 in 2015, before increasing that to 20 by 2016. This explains why most of the debt being raised is aimed for the development of content as the company wishes to gain control over the release of those contents. It must still rely on other production houses to supply them with content until it grasps control over its production lines.
It must be noted though that the company does not own its production houses yet, so it is an interesting opportunity for them to have in-house production facilities, although the management has not finalized anything yet. Future competition might affect operating margins for the Netflix, especially in the presence of high liabilities. Netf