Could Netflix's Formula for Success Abroad Be This Simple?

By Markets

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Netflix Inc(NASDAQ: NFLX) has seen rapid growth abroad, but also a lot of red ink -- it's lost more than $300 million internationally over the last four quarters.

Analysts have questioned Netflix's ability to succeed abroad as the company confronts challenges particular to the international market. In each country it operates in, the video streamer may face a different set of competitors, it must adapt its video library to the tastes of each nationality, and it must make its content available in dozens of languages.

Now it seems, according a study from UBS, that the trick to overcoming such barriers abroad may be simpler than expected.

CEO Reed Hastings explained in the company's second-quarter earnings report that its strategy abroad was to "launch a service targeting early adopters and then to listen, learn and iterate quickly. Now that we are six months in, we will localize Netflix in Poland and Turkey with the addition of local language in the user interface, subtitles and dubbing. Localization in other markets will take place over time as economically prudent."

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Is it that easy?

Indeed, Netflix did localize its content in those two countries, which have a combined population of 100 million, and the results were clear.

When Netflix launched in 130 countries in January, it did not adapt itself to local markets as it had in its previous incremental expansion. Its interface remained mostly in English without subtitles or dubbing in local languages, and the company only accepted international credit cards.

Unsurprisingly, that strategy only appealed to a small minority of customers in those countries, which explains why Netflix's international subscriber additions dropped off from 4.5 million in the first quarter to just 1.5 million in the second, its slowest growth abroad in years.

But there's a big sign that Netflix's attempt to localize its content and interface in Poland and Turkey paid off last quarter. UBS found that "In both markets the ranking of Netflix app downloads has catapulted in September." In Turkey, Netflix's iPad app download ranking jumped from under 500 to the top 50, and in Poland, it went from around 50 to the top 5. Google search volume for Netflix also spiked in both countries, more than tripling once it was adapted to local languages. Those are all promising signs that subscribership jumped in those both markets.

The long road ahead

Localizing content across 130 countries won't be easy, and as Hastings said, it will "take place over time as economically prudent," as the company has other spending priorities, including building its content library and adding more original programming.

Of the 130 countries that the streamer expanded in to in January, only India and Russia have more broadband households than Poland and Turkey, which have 10 million and 13 million, respectively. India has 24 million broadband-connected households, and Russia another 27 million.

But while progress may be slow beyond those four countries, the vast number that are waiting to be localized should ensure that Netflix has a long tail of growth abroad ahead of it. We'll learn more about the company's international progress when it issues its third-quarter earnings report on Monday, but the early evidence from Poland and Turkey seems to indicate that the streamer has a bright future ahead of it outside of the U.S.

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Jeremy Bowman owns shares of Netflix. The Motley Fool owns shares of and recommends Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.