Hollywood titans are getting excited about the unique worldwide ambition that Netflix brings to the table. Maybe it's time for investors to drool over the digital video pioneer's international prospects, too.
Continue Reading Below
In a recent interview with Variety magazine, content production veteran Ben Silverman waxed poetic about the global reach his productions can gain on the Netflix platform.
"What's incredible about Netflix is its global ambition," Silverman said in a discussion about the just-launched Marco Polo mini-series. "It was the first time I could reference a program of mine that had launched in America and in multiple markets at the same time."
By contrast, Silverman's similarly epic Showtime-bound series The Tudors took nearly 18 months to reach the French market. The quicker international release schedule sets Silverman's pulse aflutter because news, spoilers, and piracy rips travel quickly over the Internet nowadays. The segmented global release model is starting to look outdated, and Netflix helps producers sidestep the issue.
And that's where Silverman's incentives match up with those of Netflix investors.
Today, Netflix serves more than 50 million subscribers across the Americas and a generous slice of western Europe. There's a great big world out there left unexploited. The quicker, the better.
Netflix CEO Reed Hastings has plainly stated his ambition to blanket the world in Netflix services. "We hope to be fully global, everywhere in the world, including China," Hastings said to a reporter from The Telegraph in October.
If and when that happens, Silverman gets his ideal distribution platform. Create fantastic content, sign a distribution contract with Netflix, and reach all four corners of the world overnight. That model would fit the needs of modern media distribution, given the Internet-powered concerns that Silverman worries about. And of course, simplified blanket contracts with worldwide distribution rights must be the perfect model for Netflix as well -- simpler accounting and fewer limited-rights problems than the current patchwork of separate licenses for each geographic market.
And obviously, that complete vision would dramatically increase the value of the Netflix service.
Today, the company sells subscriptions to roughly 50 million households in an addressable broadband market of about 180 million households. That's in a world where nearly 10% of the world's 7.2 billion inhabitants have access to fixed broadband, and 27% subscribe to mobile broadband services. Mobile networking is often more efficient than expensive personal cable runs in developing nations.
Image source: Netflix.
Penetrating China alone would add another 90 million broadband households to Netflix's coverage map, and Internet access is growing rapidly in the world's most populous country.
Long story short, Netflix has only reached a fraction of the current global broadband market. The company keeps expanding into new countries, year by year, while broadband access also grows more common all over the world.
In the very long term, Netflix could be looking at an addressable market for online entertainment north of a billion global households. Today, 40% of the American broadband market subscribes to Netflix. Yes, that figure is for the home market -- but then again, it's just an interim number with more growth and wider adoption still to come.
The company could multiply its subscriber counts and revenue many times over by making Silverman's global distribution dream a reality. Content costs will also increase thanks to the far larger target audience, but Netflix aims to reach an endgame with 40% contribution margins in the U.S., and margins in many abroad markets may rise to similar levels.
Silverman wants to reach the whole world with a single distribution contract. Netflix wants the same thing. And that's where most of the company's growth will happen in the long term.
The article Hollywood Pro Ben Silverman: "What's Incredible About Netflix Is Its Global Ambition" originally appeared on Fool.com.
Anders Bylund owns shares of Netflix. The Motley Fool recommends and owns shares of 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.
Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.