Japan is Netflix’s first official Asian expansion market (although millions of Asians have unofficially joined via VPNs in Netflix countries), and as such, is seen as a test market for China and South Korea. Here’s what Wells said about the Japan rollout, slated for later this year:
Why it won’t be like Netflix’s Quixotic wanderings in Latin America: “The ability to pay, the wealth, all that is there, consumption of online video is huge.”
Why Netflix won’t end up like Hulu, which sold itself of Nippon TV last year: “I’m not sure that (Hulu) received a full level of investment (from its studio owners) in terms of what could be done in a market.”
Connectivity should not be an issue: “There is plenty of high-speed broadband in a better shape than America in terms of density and speed.”
But figuring out the content mix could be challenging. “The glaring line is the propensity to enjoy Japanese content or at least local content or some Korean drama in there (and) some Chinese content as well.”
Netflix will double the number of original shows and movies it produces with the goal of having 40 original programs each year. Content Chief Ted Sarandos expects to reach that level in a couple of years, Wells said.
As always, Wells was cagey about how Netflix measures return on investment for these (sometimes pricey) shows in lieu of ratings (and advertising revenue):
“We don’t have to have a show that has 20 million viewers. A success for us relative to cost might be a show that’s got 2 million to 4 million viewers, and if we can find that set of people that’s going to suit us just nicely,” Wells said.
“As long as we are funding the doubles and triples we’re good. And if that content increasingly works outside the U.S. there is another advantage in terms of being able to distribute to a larger platform outside the U.S. and do that in a very efficient, quick manner where we’re bringing content that is in the right size quickly to those audiences. You don’t have to have the one- and two- and three-year delay that increasingly world consumers are intolerant of and you see that reflected in the piracy numbers.”
What’s cool and somewhat scary about the idea of global micro markets for content is that Netflix will be able to produce some very elaborate data about global media consumption for the first time ever.
The Netflix algorithms’ ability to predict ebb and flow of global tastes will surely yield some interesting insights into other facets of the collective human psyche. Take a look at this story I wrote about how Netflix-type algorithms are being used in other settings.
After testing the waters in Canada, Latin America, the United Kingdom and the Nordics, Netflix has concluded that its international model offering streaming-only with mostly Hollywood-produced content works really well, even in non-English-speaking countries. Wells said demand for “high-quality, western-produced” TV shows and movies is strong globally and international consumers are increasingly aware of streaming and of Netflix.
Thus, Netflix has been constructing content catalogs of around 80 percent Hollywood-produced content and 20 percent local content for each market, Wells said.
The strategy of acquiring popular local content extends Netflix’s “cool factor” by connecting subscribers with global zeitgeist — the same way the company aligned itself with the budding independent film movement, way back when, to culturally elevate online rental above pedestrian Blockbuster and its other store-based competition.
Wells said the top factors in choosing the next expansion market are (pretty obvious, in case you’re wondering why service hasn’t started in your area):
- Broadband penetration
- Consumption of online video
- Disposable wealth
- Netflix’s ability to accept payment in that country