Author(s): Raghu Gopal
This week, Netflix reported that it's in talks with Indonesia's state-controlled telecom company Telekomunikasi Indonesia (Telkom) to roll out its video streaming service in the country. For Netflix, which is about to reach a milestone of 100 million subscribers, Indonesia potentially offers big numbers, but the company will have to adjust to local preferences and regulations.
Indonesia, with a population of 250 million, isn't a new market for Netflix. Rather, its move into the country is a reboot of its strategy. In January 2016, Netflix launched its service in 130 countries worldwide including Indonesia, where the company was banned after it ran afoul of the film censorship board for carrying content that was deemed too violent or sexual in nature.
According to executives at Telkom, the operator is now negotiating a partnership agreement with Netflix and hopes to complete the process next month.
Netflix is now a household name in many countries around the world and has continued to make a strong push to expand its service globally, but it's clear that it faces tough local competition and regulatory hurdles, particularly in some important Asian markets such as China (see Netflix Goes Bollywood).
With more than 50 million subscribers in the US, Netflix's content is accessed by more than 40 percent of households in the country. The company still has scope to grow in its home market, but the landscape is getting crowded with an array of new streaming options.
During the first quarter of 2017 in the US, Netflix gained 1.42 million subscribers, lower than the 2.23 million added in the same quarter of 2016 (see Instant Insight: Netflix Results, 1Q17). Its year-on-year subscriber growth in the US was 8 percent — a figure many service companies would hope to achieve. But investors are accustomed to bigger numbers. Outside the US, Netflix gained 3.53 million customers in the first quarter of 2017, a subscriber growth rate of 39 percent year-on-year. But even this is a significant slowdown from a year-on-year growth rate of 70 percent in 2016. Netflix realises it needs markets such as Indonesia, the world's fourth most populous country.
Netflix's business model relies on customer gains to offset its mushrooming content costs. We believe its decision to re-enter the Indonesian market with a new strategy is a laudable business move. Part of this strategy includes plans to strengthen investment in local original content that could have global appeal.
Netflix faces the threats of slowing subscriber growth and growing competition, particularly from Amazon, which launched its video service globally in late 2016 and recently signed a deal to stream a package of NFL Thursday night football games in the US.
Maturity is not part of Netflix's business plans. Jakarta is next on its playlist.